The 17th round of the FICCI-IBA survey, covering the period from January to June 2023, has unveiled promising insights into the Indian economy and the banking sector. A total of 24 banks, comprising public sector, private sector, and foreign banks, participated in this comprehensive survey, collectively representing an impressive 79% share of the banking industry by asset size.
The Indian economy posted an impressive 7.2% growth in the financial year ended March 2023 and 7.8% in first quarter of current fiscal year. Credit growth also continued to rise, signalling robust demand conditions in the Indian economy, as well as banks’ improved appetite towards retail borrowers. The health of the banking sector has witnessed an encouraging turnaround, marked by healthier bank balance sheets and gross NPA ratio at a decade low.
The survey findings show that long term credit demand has seen continued growth for sectors such as infrastructure, textiles and chemicals. food processing and metals. Iron and steel have also witnessed accelerated long-term loan disbursements in the past six months. Infrastructure is witnessing an increase in credit flow with 67% of the respondents indicating an increase in long-term loans as against 57% in the previous round. The survey suggests that the outlook on expectation on growth of non-food industry credit over next six months is optimistic with 42% of the participating banks expecting non-food industry credit growth to be above 12% (as compared to 36% in the previous round).
Given the higher rates of interest, a shift towards term deposits has been observed. Over half of respondent banks (57%) reported a decrease in the share of CASA deposits in total deposits in the current round of survey. The term deposits have picked up pace as reported by the respondent banks.
According to the survey, 54% of respondent banks reported that the credit standards for large enterprises have remained same (83% of the banks reported so in the last round). In the current round of survey, 29% of participating banks reported easing of credit standards, indicating continuous improvement in funding. For SMEs too, 68% of the respondents have reported no change in credit standards in the current survey round.
Turning to asset quality, 75% of the respondent banks reported a decrease in the NPA levels in the last six months as compared to 90% banks that reported so in the previous round. An overwhelming 90% Public Sector Banks have cited a reduction in NPA levels while amongst participating Private sector banks, 80% banks have cited a decrease. Amongst the sectors that continue to show high level of NPAs, most of the participating bankers identified sectors such as infrastructure, textiles and food processing. Other sectors identified as high NPA sectors include Metals and Iron & Steel and Engineering Goods.
Respondent banks were more sanguine about the asset quality prospects in the current round of the survey, cushioned by policy and regulatory support and this was reflected in the survey results. 54% of the respondent banks in the current round believe that Gross NPAs would be in the range of 3% – 4% over the next six months.
Resilient domestic economy, pick up in credit growth supported by Government capex, robust recovery mechanism, high provisioning and high write-offs were cited as the key factors by respondent bankers who expect asset quality to further improve over the next six months. As per respondents, some of the sectors that may continue to show NPAs over next six months include textiles and garments, MSME, aviation, agriculture and retail trade.
Banks were asked to share their experience with regard to Digital Banking Units (DBUs). Majority of banks stated that the customer response and visitor footfall in DBUs were encouraging. DBUs are successful in terms of expanding digital penetration among retail and corporate customers. They observed that small and medium-sized shops, which are proprietorship and partnership firms, found DBUs useful.
Banks were also asked to share their level of preparedness regarding startup funding. Most banks reported that they are well-equipped in terms of capital and some of them have also set up start-up verticals catering to this requirement. Banks also suggested some additional measures that can be taken by banks to further improve the funding for the start-up ecosystem. These included streamlining of loan application and approval process for start-ups which may be done in collaboration with fintech; establishing of specialised divisions catering to special financial needs of start-ups; exploring alternate forms of collateral such as IPR, equity stakes, etc; partnering with incubators, accelerators and VCs; organising financial education workshops specifically for start-ups. In addition, it was also suggested that RBI may consider a separate liquidity window, wherein banks can source funds for on-lending to start-ups.