NPAs expected to go above 10% in the first half of 2021, says the FICCI-IBA survey

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Asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021, according to a survey. The findings are part of the 12th round of bankers’ survey carried out by FICCI-IBA between July and December 2020.

The survey was conducted on 20 banks, including public sector, private sector and foreign banks, representing about 59 per cent of the banking industry, as classified by asset size. In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78 per cent of participating state-run banks have cited a reduction in NPA levels.

“However, in terms of outlook, nearly 68 per cent of respondent bankers expect the NPA levels to be above 10 per cent in the first half of 2021,” the survey showed. Close to 37 per cent of respondents expect NPA levels to be upwards of 12 per cent. The Reserve Bank of India’s Financial Stability Report, released in January this year, showed that gross non-performing assets (NPAs) of banks may rise to 13.5 per cent by September 2021, under the baseline stress scenario.

Some of the high NPA risk sectors identified by the majority of respondent bankers in the current round of survey include tourism and hospitality, MSME, aviation and restaurants, the survey showed. Around 55 per cent of respondents believe NPAs to rise substantially in the tourism and hospitality sector, while another 45 per cent reported that NPAs are likely to increase moderately in this sector.

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Another high NPA risk sector reported in the current round of survey is the MSME sector, with 84 per cent respondents expecting an increase in NPAs in this sector. Close to 89 per cent respondents also expect the restaurant sector to see an increase in NPAs, though only 26 per cent expect NPAs to increase substantially in this segment, it showed.

The survey revealed that there was a significant increase in the requests for one-time restructuring for MSMEs, announced by the RBI in August last year. “An overwhelming 85 per cent of the respondent banks have cited an increase in requests for restructuring of advances as against 39 per cent in the last round,” it said.

The long-term credit demand has been growing for sectors such as infrastructure, pharmaceuticals and food processing, the findings showed. “Particularly for the pharma sector, 45 per cent of the respondents have indicated an increase in long term loans in the current round of survey as against 29 per cent in the previous round,” it showed.

Over half of the respondents indicated that they did not avail funds under on-tap targeted long-term repo operations (TLTRO) while about 33 per cent said that TLTRO funds were deployed completely in securities issued by NBFCs/ MFIs, the survey showed.