Banks reporting rise in NPAs and restructuring of loans much lower vis-a-vis the previous round

The sixth round of the FICCI-IBA survey was carried out for the period July to December 2017. A total of 19 public sector, private sector and foreign banks participated in the survey. These banks together represent 59% of the banking industry, as classified by asset size.

Bank credit has been growing at a slow pace in the economy. The bankers have suggested specific measures that may be announced in the upcoming Union Budget to facilitate credit growth and investment pick-up in the economy. They recommend accelerated investments in infrastructure sector as well as interest subvention for investments in long gestation infrastructure projects. Most of the responding banks have suggested reduction in corporate tax rate from 30% to 25%, lowering of MAT rate to 15% and enhancing tax deductions and exemptions for individuals. This should boost credit demand at both corporate and retail level.

As regards the banking sector, the respondent banks have suggested that in the upcoming Union Budget, the government should allow full tax deduction on the NPA provisioning as against the cap of 5% of taxable income. They have also suggested greater incentives for promoting digital transactions for merchants and users, as well as creation of dedicated fund for digital payments infrastructure in the upcoming Union Budget.

In-fact, respondent banks have seen significant progress in digital transactions over the last one year. The volumes as well as value of digital transactions have increased manifold for most of the respondent banks. The banks have reported significant rise in digital payments across all channels (cards, UPI, Aadhar Pay, etc). Banks have also reported that first time users of digital payments have gone up in the last one year. Several respondent banks have also partnered with Fintech firms in areas of wealth management, e-commerce, payments and others. To further enhance digital transactions, in addition to the incentives, banks have suggested improvement in data security infrastructure and widening the reach of digital platforms to all strata of the society.

Banks have welcomed the recapitalization plan of Rs. 2.11 trillion for public sector banks and believe that it will help in boosting credit growth and subsequently growth recovery of the economy. Banks have suggested that banking reforms should go hand in hand with recapitalisation plan and there should be improvement in processes and policies in the public sector banks to avoid further erosion of capital. Additionally, some of the respondents were of the view that the amount of recapitalisation will not be adequate and banks would need to consider raising additional capital through QIP route or through monetisation of non-core assets.

The survey findings reveal that banking sector performance during July-December2017 period remains more or less similar to the previous six months on the parameters studied. Nearly 67% of the participating banks have maintained their credit standards for large as well as small enterprises. Out of the few who have tightened credit for large enterprises have cited rise in NPAs or a risk of the asset turning into NPA as the main reason for their action.

The share of corporate to retail loans also remains the same at 56:44 as noted in the previous round of the survey. Likewise, the ratio of advances to investments (SLR and non-SLR) at 66:34 also remains nearly same as in the previous round (68:32).

Following repo rate reduction of 25 basis points by the RBI in Aug 2017, almost 84% of the respondents have reduced their MCLR. A large majority (58% respondents) reduced it by 20 basis points. 11% reduced the MCLR by 20-30 basis points. 5% decreased by 30-40 basis points and 5% reduced by 40-50 basis points. Another 5% reduced the MCLR by more than 50 bps. In case of term deposits, 56% respondents have reduced rate for term deposits below one year and 78% respondents for term deposits above one year.

The number of banks reporting increase in share of CASA deposits has been lower in the current round of survey. 48% of participating banks have indicated an increase in the share of CASA deposits as against 58% in the previous round. Around 35% of the respondents have also cited a moderate decline in CASA deposits. Withdrawal of deposits made earlier during demonetisation, slow growth in current account deposits and withdrawals for agricultural activity have been cited as key reasons for such decline.

58% of the respondent banks reported a rise in NPAs, significantly lower than 80% reporting so in the previous round of the survey indicating possible stability in credit environment. Infrastructure, metals and engineering goods were the key sectors reported with the highest NPAs. However, only 28% banks reported a rise in the number of requests for restructuring of loans as compared to 40% in the previous round.

Banks were also asked for their views and suggestions on improving the ease of doing business ranking with respect to credit. Banks have suggested various measures like setting up of single window regulatory/statutory approvals for a fresh venture/ exposure, strengthening up of online loan applications platform and speedy credit underwriting process, and introduction of Legal Entity Identifier (LEI) code to improve the quality and accuracy of financial data systems for better risk management.

A large number of banks have also welcomed RBIs move of setting up a high-level task force for setting up a public credit registry. The banks stated that such a credit registry will enhance efficiency of the credit market, increase financial inclusion, improve ease of doing business and help control delinquencies, thereby improving the quality of evaluation of credit proposals.

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