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Health of Indian banking sector continues to improve with better asset quality, high credit growth: FICCI-IBA Bankersā€™ Survey

Mar 21, 2024

  • Growth of over 12 per cent projected for non-food industry credit by majority respondents


NEW DELHI, 21st March 2024: The eighteenth round of the FICCI-IBA Bankers’ survey was carried out for the period July to December 2023. A total of 23 banks including public sector, private sector and foreign banks participated in the survey. These banks together represent about 77 per cent of the banking industry, as classified by asset size.


India’s economy held relatively well (7.6 per cent) in FY24 compared to other major economies driven by strong investment growth and a rebound in industrial activity. Credit growth also continued to rise, supported by factors such as economic expansion and a continued push for retail credit which has been supported by improving digitalisation. The banking sector’s clean balance sheets support further loan growth going forward.


The survey findings show that long term credit demand has seen continued growth for sectors such as Infrastructure, Metals, Iron and Steel, Food Processing. Infrastructure is witnessing an increase in credit flow with 82 per cent of the respondents indicating an increase in long-term loans as against 67 per cent in the previous round. The survey suggests that the outlook for non-food industry credit over next 6 months is optimistic with 41 per cent of the participating banks expecting non-food industry credit growth to be above 12 per cent while 18 per cent feel that non-food industry credit growth would be in the range of 10-12 per cent. 36 per cent of the respondents are of the view that non-food industry credit growth would be in the range of 8–10 per cent.


Customers’ search for higher rates and the ability to lock those interest rates for a longer time has led to a shift in favour of term deposits. As such, term deposits have picked up pace as reported by the respondent banks. Further, around 70 per cent respondents have reported a decrease in the share of CASA deposits in total deposits.


According to the survey, 65 per cent of respondent banks reported credit standards for large enterprises to have remained unchanged as against 54 per cent in the last round. Respondents reporting easing of credit standards has decreased to 17 per cent in the current round as against 29 per cent in the previous round while those reporting tightening in credit standards were largely same as in the previous round. For SMEs too, 64 per cent of the respondent banks reported no change in credit standards in the current round, and 27 per cent have reported easing of credit standards.


On asset quality, a large majority (77 per cent) of the respondent banks reported a decrease in the NPA levels in the last six months. All responding PSBs have cited a reduction in NPA levels while amongst participating Private sector banks, 67 per cent banks have cited a decrease. None of the respondent PSBs and Foreign banks have stated an increase in NPA levels over the last six months while 22 per cent private banks reported an increase. Amongst the sectors that continue to show a high level of NPAs, most of the participating bankers identified sectors such as Food Processing, Textiles, and Infrastructure.


Over 40 per cent respondents have reported decrease in requests for restructuring of advances in the current round of the survey as compared to 54 per cent in the previous round. The proportion of respondent banks citing an increase in requests for restructuring of advances was 17 per cent, which is same as in the previous round.  Bank-wise analysis reveals that 50 per cent of participating PSBs have cited a decrease in requests for restructuring of advances while 30 per cent of such respondents have reported increase in such requests.


Respondent banks were more sanguine about the asset quality prospects in the current round of the survey, cushioned by policy and regulatory support and this was reflected in the survey results. Over half of the respondent banks in the current round believe that Gross NPAs would be in the range of 3–3.5 per cent over the next six months. 14 per cent respondents are of the view that NPA levels would be in the range of 2.5–3 per cent.


Resilient domestic economy accompanied by pick up in credit growth supported by Govt capex, rising provision coverage ratio, restructuring and rehabilitation of all eligible stressed units, mobilization of OTS proposals, 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. As per respondents, some of the sectors that may continue to show NPAs over the next six months include Textiles and garments, Agriculture and Gems & jewellery.


Banks were asked about their preparedness for the eventual adoption of Expected Credit Loss (ECL) -based provisioning. Majority of the respondent banks stated that they were well-positioned for a smooth transition to the ECL regime and have put in place models and frameworks for ECL based provision computations which are being reviewed and validated internally.


The current round of survey asked to share the key impediments confronting Bancassurance and how to overcome it. The cap of Rs 5 crore sum insured for banks, low consumer awareness, product knowledge and understanding, competition from fintech and digital insurance players were amongst the many challenges shared by respondent bankers and solution for the aforementioned challenges were also elucidated. Respondent banks also shared the key steps they have taken to support the industry in its efforts towards climate adaption and mitigation including introduction of ESG policy, integrating ESG framework in their risk assessment, focusing on lending towards green projects and taking internal steps for making their own banks greener and more sustainable.