According to a survey conducted by industry body FICCI and banking association Indian Banks’ Association (IBA), public sector banks in India are outperforming their private sector counterparts in managing non-performing assets (NPAs). NPAs are loans or advances that are at risk of default.
The survey reveals that a significant majority (77%) of the respondent banks experienced a decline in their non-performing asset (NPA) levels over the past six months. Specifically, all public sector banks that participated in the survey reported a reduction in NPAs, while 67% of the private sector banks also noted a decrease.
None of the respondent public sector banks or foreign banks reported an increase in their non-performing asset (NPA) levels over the last six months. However, 22% of private banks indicated a rise. Among the sectors with persistently high NPAs, participating bankers predominantly identified industries like food processing, textiles, and infrastructure.
According to the survey, respondent banks expressed greater optimism regarding the asset quality outlook in the current phase. Over half of the respondent banks projected that gross non-performing assets (NPAs) would fall within the range of 3% to 3.5% over the next six months. Additionally, approximately 14% of respondents anticipated NPA levels to range between 2.5% and 3.0%. Identified sectors expected to persist with NPAs in the next six months include textiles and garments, agriculture, and gems and jewellery.
The eighteenth round of the survey, conducted for the period July to December 2023, encompassed banks representing approximately 77% of the banking industry by asset size. Interestingly, the survey revealed a decline in requests for restructuring of advances within the Indian banking sector.
Loan restructuring serves as a mechanism for borrowers and lenders to avert defaulting on existing debts by renegotiating loan terms. This can involve reducing the loan equated monthly installment (EMI), extending the repayment tenure, or modifying the agreed-upon interest rate.
In the latest survey, approximately 44% of respondents noted a decline in requests for loan restructuring compared to 54% in the previous round. Conversely, 17% of respondent banks reported an increase in restructuring requests, consistent with the previous round’s findings.
An analysis by banks revealed that among participating public sector banks, 50% reported a decrease in requests for loan restructuring, while 30% noted an increase. Conversely, in the private sector, half of the respondent banks saw a decline, with only 10% reporting an uptick in restructuring requests. Foreign banks unanimously reported no change in restructuring requests.
Respondent bankers anticipate improved asset quality over the next six months due to a resilient domestic economy, increased credit growth supported by government spending, and effective restructuring and rehabilitation of stressed units. Sectors like textiles, garments, agriculture, and gems and jewelry are expected to continue experiencing NPAs.
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