Public sector banks better at managing NPAs than private sector: FICCI survey

Nonperforming assets refer to loans or advances that are on the verge of default.

New Delhi:

A survey by industry body FICCI and banking association Indian Banks Association (IBA) has found that India’s public sector banks are performing better in terms of non-performing assets compared to their private sector peers.

Nonperforming assets refer to loans or advances that are on the verge of default.

The survey showed that the vast majority (77%) of banks surveyed reported that the level of non-performing assets had declined in the past six months.

All public sector banks participating in the survey reported a fall in NPA levels, while 67 per cent of private sector banks participating in the survey reported a fall in NPA levels.

None of the public sector banks and foreign banks surveyed said the level of NPAs had increased in the past six months, while 22 per cent of private banks said the level of NPAs had increased.

Among the sectors that continue to exhibit high levels of NPAs, most participating bankers identified sectors such as food processing, textiles and infrastructure.

The survey shows that the banks surveyed are relatively optimistic about the outlook for asset quality.

More than half of the banks surveyed in this round of surveys believe that total non-performing assets will be between 3% and 3.5% in the next six months. About 14% of the respondents believe that the NPA level will be in the range of 2.5-3.0%.

Sectors that are likely to continue experiencing NPAs over the next six months include textiles and apparel, agriculture, and gems and jewelery, according to respondents.

The eighteenth round of investigation will be conducted from July to December 2023. Classified by asset size, the banks surveyed accounted for approximately 77% of the banking industry.

Regarding requests for restructuring of advances, the survey found a decline in requests for restructuring of advances from the Indian banking sector.

Loan restructuring is a way for borrowers and lenders to avoid default on current obligations by negotiating the terms of the loan. This can be achieved by reducing the loan EMI, extending the loan repayment period or changing the previously agreed interest rate.

The survey showed that about 44% of respondents said there were fewer requests to restructure advances in this round of surveys compared to 54% in the previous round.

The proportion of surveyed banks indicating an increase in advance restructuring requests was 17%, the same as in the previous round.

Bank-side analysis shows that 50% of participating public sector banks reported a decrease in advance restructuring requests, while 30% of respondents reported an increase in such requests.

Among the private sector banks participating in the survey, half of the banks surveyed reported a decrease in restructuring, while only 10% reported an increase in restructuring over the past six months.

All participating foreign banks said there was no change in advance restructuring requirements.

Bankers surveyed cited the resilience of the domestic economy, a pickup in credit growth supported by government capital expenditure, rising provision coverage, restructuring and rehabilitation of all eligible stressed units and a strong recovery mechanism as key factors. Asset quality will improve further over the next six months.

Sectors that are likely to continue experiencing NPAs over the next six months include textiles and apparel, agriculture, and gems and jewelery, according to respondents.

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