Banks are exercising caution while taking exposure to large enterprises due to apprehension on asset quality, lower economic growth, sector–specific risks, among others, according to a FICCI-IBA joint survey.
Out of the respondents reporting a tightening in credit standards for large enterprises, 89 per cent have cited a rise in non-performing assets (NPA), 67 per cent cited expectations of weak economic growth, 44 per cent cited higher sector-specific risk and 11 per cent cited increase in cost of funds as factors for doing so.
Eighteen banks — public sector, private sector and foreign banks, constituting about 50 per cent of the total banking asset size, participated in the 10th round of survey. The expectations of the respondents are for the period January to June 2020. In the current round of the bankers’ survey, less proportion of the respondent banks have reported a decline in the level of NPAs.
As compared to the first half of 2019 in which nearly 52 per cent of the respondents had reported a decline in the NPA levels, the proportion of respondent banks citing a reduction in NPAs in the current round of survey has reduced to 39 per cent, according to the survey.
The proportion of respondent banks reporting a rise in the NPA levels on the other hand has shown slight increase to 28 per cent as against 26 per cent in the preceding survey.
Amongst the key sectors with high level of NPAs such as infrastructure, metals, iron & steel, engineering goods and textiles, higher proportion of respondent bankers have indicated high levels of NPAs in these sectors.
For instance, while about 73 per cent and 55 per cent of the respondents mentioned infrastructure and metals, iron & steel as sectors with high level of NPAs, respectively, in the last survey round, the proportion of respondents saying so have increased to 93 per cent and 60 per cent, respectively, in the current round of survey.
Amongst the respondents stating infrastructure as high NPA sector, about 36 per cent of these respondents have reported an increase in NPA in this sector during July-December 2019 period.
Relaxation for SMEs
According to the survey, for SMEs (small and medium enterprises), large number of banks have relaxed the credit standards.
Bankers observed that capacity building of the MSME (micro, small and medium enterprises) borrowers through training programmes, extending value added services such as mentorship, credit counselling, guidance, etc, will help MSMEs to understand the institutional financing requirements and would help to increase the flow of credit to these sectors.
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