Mumbai: A survey conducted by industry body FICCI and Indian Banks’ Association (IBA) has revealed that banks expect asset quality to improve further in the next six months on the back of restructuring of eligible stressed units along with a resilient economy and strong credit growth.The 18th round of the survey was conducted for the period of July to December 2023.
A total of 23 banks including public sector, private sector and foreign banks participated in the survey. The surveyed banks collectively represent about 77 per cent of the banking industry, as classified by asset size.
Over half the respondents believe gross non-performing assets (GNPA) would be in the range of 3 to 3.5 per cent in the next six months. Further, as many as 14 per cent of respondents believed NPA levels would be in the range of 2.5 to 3 per cent. Textiles and garments, agriculture, and gems and jewellery are among the sectors expected to continue showing NPAs in the coming months.
Interestingly, the survey revealed that nationalised banks are outperforming their private sector counterparts in terms of managing bad loans. All public sector banks reported a reduction in NPA levels, while 67 per cent of participating private sector banks cited a decrease. Additionally, none of the respondent public sector banks or foreign banks stated an increase in NPA levels over the last six months, whereas 22 per cent of private banks did report an increase.
Resilient domestic economy accompanied by pick up in credit growth supported by government capex, rising provision coverage ratio, restructuring and rehabilitation of all eligible stressed units, robust recovery mechanism, and initiation of SARFAESI action in all eligible cases in a time bound manner were cited as the key factors by respondent bankers who expect asset quality to further improve over the next six months,” the survey noted.
Meanwhile, Emkay Institutional Equities in a report said that it expects credit growth in India to moderate down to 12-14 per cent on a yearly basis over the financial year 2024-25-2026-27 from the current 16.5 per cent. The loan-to-deposit ratio (LDR) is expected to fall to a reasonable level of 75 per cent from the current high of 80 per cent. Explaining the rationale, the financial services company noted that the extended elevated interest rate cycle, higher funding cost, coupled with rising asset-quality risk in unsecured retail loans, pose risk to profitable lending.
Some of the banks, according to the report, have reduced the excess cash on the balance sheet to fund credit growth in the recent period, thereby delaying deposit growth and protecting margins.However, most of these levers are now largely exhausted and, thus, banks will have to mobilize deposits to incrementally fund credit growth.
