The fifteenth round of the FICCI-IBA survey was carried out for the period January to June 2022. A total of 25 banks including public sector, private sector and foreign banks participated in the survey. These banks together represent about 76% of the banking industry, as classified by asset size.
Despite a muted start of the year with Omicron wave taking over, the economic activity in India remains in recovery mode. Growth is seen broad basing with most sectors operating at pre-pandemic levels. The contact-based services sector, which was most severely impacted by the pandemic waves, is also seen gaining traction.
The survey findings show that long-term credit demand have been growing for sectors such as Infrastructure, Chemicals, Food Processing, Metals, Iron & Steel and Petroleum products. Infrastructure is witnessing an increase in credit flow with 76% of the respondents indicating an increase in long term loans as against 68% in the previous round. In case of Chemicals, 52% of the respondents indicated an increase in long term loans in the current round as against 32% in the previous round while the Petroleum products sector was indicated by 40% of the respondents, in the current round as against 27% 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 48% of the participating banks expecting non-food industry credit growth to be above 10% as compared to 13% who reported likewise in the previous round.
An uptick in CASA deposits has been reported by a majority (75%) of respondent banks in the current round of survey. The reasons cited by respondents for increase in the share of CASA deposits include reduction in interest rate spread between the fixed deposit rate and saving deposit rate, increased focus by Banks on low-cost deposits (CASA) in line with the credit growth and increased spending habits as economy has started picking up with a dip in Covid-19 cases.
A vast majority (92%) of respondent banks reported credit standards for large enterprises to have remained unchanged as against 78% in the last round. None of the banks reported tightening of credit standards during first half of 2022 as against 9% in the previous round. For SMEs too, as against 55% of the respondent banks reporting no change in credit standards in the last round, 68% of the respondents have reported the same in the current survey round, and 28% have reported easing in credit standards. The credit standards are likely to remain unchanged even in the second half of 2022, as reported by a large majority of respondent bankers.
The proportion of respondent banks citing an increase in requests for restructuring of advances has dropped to 12% in the current round of survey from 61% in the previous round. A large majority (56%) of respondents have reported decrease in such requests in the current round of the survey.
Turning to asset quality, there seems to have been a further improvement in asset quality with 67% of the respondents reporting a decrease in the NPA levels in the last six months. The proportion of respondent banks citing a rise in NPAs was 17% in the current round, an improvement compared with the previous survey (27%). Bank wise analysis reveals that an overwhelming 89% of participating Public sector banks have cited a reduction in NPA levels while in case of participating Private sector banks, nearly two-thirds of respondent 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 Textiles, Infrastructure, Retail, Food Processing, and Metals, Iron & Steel. Other sectors identified as high NPA sectors include Engineering Goods and Auto & auto components.
Going forward, more than half of the respondents expect the Gross NPA levels to be below 8% by the end of December 2022 while 33% of the respondents are of the view that Gross NPA levels would be in the range of 8-9%. Recovery of economy from Covid-19 shock, higher credit growth, substantial deleveraging of corporate balance sheets, better performance of industry, healthy capital position, Use of Recovery Agencies, Transfer of NPA Accounts to NARCL were cited as the key factors by respondent bankers who reported gross NPAs to be below 8% and in the range of 8-9% over the next six months.
Some of the high NPA risk sectors identified by respondent bankers in survey include MSME, Aviation, Tourism and hospitality, Power and Retail Trade. 65% of the respondent banks expect NPAs in the MSME sector to increase in the next 6 months.
The shift towards digitization, disruptive innovation, and new technologies has led banks to invest substantial amounts to upgrade their information technology infrastructure, leading to higher operating expenses. 37% of the respondents stated that their average technology expenses as a percentage of the operating expenses for FY22 was above 8%, while another 36% of the respondents stated that it was in the range of 5 - 8%. Around 27% of the survey respondents reported it to be below 5%. Cyber Security emerged as the key area in which technology investments have witnessed an increase; as reported by 73% of the survey respondents. Cloud based solutions (68%) and Building new platforms (68%) were the other key investment areas pointed by the survey respondents.
Most of the respondent banks believe that PSL guidelines need a relook and have offered several suggestions, including upward revision in qualifying limits for PSL for agriculture, renewable energy, NBFCs for on-lending, as well as for housing and education loans. Banks have also suggested adding more sectors and sub-sectors for PSL eligibility including the entire agri-value chain as well as areas related to climate sustainability.
Banks were asked if setting up of Digital Banking Units would facilitate speedy transition of India to a digital economy. All the respondents indicated in affirmative. Bankers believed that this step is beneficial for both customers and banks and will play a pivotal role in accelerating and widening the reach of digital banking services and enabling last-mile financial inclusion.