An overwhelming majority of banks reported rise in non-performing assets (NPAs) during the first six months of the year and their profitability took a dip due to higher provisioning for bad loans, a survey said on Monday.
“Majority of the participating banks i.e. 85 per cent reported an increase in their NPA levels, amongst which all the public sectors banks reported a rise in their NPAs,” FICCI-IBA Bankers’ survey showed.
However, in terms of restructuring of advances, 32 per cent of the respondents indicated a moderate decline in the number of cases requested for it.
Moreover, majority of participating banks believe that the Insolvency and Bankruptcy Code provides an effective mechanism for resolution of insolvency and will help banks in their recovery efforts.
The survey was conducted in July for the period January-June 2016. It witnessed participation of 20 banks, including public, private and foreign banks.
Majority of participating banks have not reported any change in credit standards during the period January-June 2016 as against the previous six months.
However, about 44 per cent of respondents have tightened their credit standards for large enterprises due to rising NPAs and higher sector-specific risk.
In case of SMEs, about 16 per cent of respondents have eased their credit standards compared to 24 per cent reported in the earlier due to higher provisioning and the asset quality review undertaken by the banks.
Nearly 91 per cent reported tightening lending standards due to higher provisioning of NPA, followed by higher sector specific risk prevailing in the economy.
Besides, 58 per cent of the participating banks in the latest round of survey have reported a status quo on the base rates during January-June 2016 time period, indicating weak transmission of repo rate reduction into the lending rates. However, effective from April 1, 2016, MCLR is operative and banks are reducing the MCLR along with deposit rates.
In terms of current and savings account (CASA) deposits, 75 per cent of the respondent banks have reported a rise in CASA deposits during the period January-June 2016, backed by a healthy growth in the savings account deposits.
According to the survey, 56 per cent of the participating banks reported an increase in long-term loans especially in the infrastructure sectors namely, power, road, and telecom.
Other sectors witnessing higher credit growth include real estate and food processing industry.
Majority of banks expect that along with capital infusion by the government, more steps are required to be taken to boost capital.
Banks need to take measures such as improvement in internal processes, optimisation of the capital allocation, rebalancing of loan portfolio in favour of retail loans and raising resources through sale of non-core assets.
They welcomed guidelines for on-tap licensing of universal banks, which they believe will be effective in promoting competition in the banking sector and for achieving the objective of financial inclusion in India.