FICCI-IBA Bi-An­nual Sur­vey of Bankers

De­mon­e­ti­za­tion boosts liq­uid­ity, low­ers cost of funds and im­proves mar­gins for banks

FICCI Business Digest - - Special Feature -

The fourth round of the FICCI- IBA Bankers Sur­vey for July-De­cem­ber 2016 saw the par­tic­i­pa­tion of 17 banks, rep­re­sent­ing 52% of the to­tal banking in­dus­try (by as­set size) in­clud­ing public, pri­vate as well as for­eign banks.

The sur­vey was con­ducted in the back­drop of the de­mon­eti­sa­tion move with re­spect to spec­i­fied bank notes (SBN), which has been un­prece­dented and ex­pected to have short-term as well as long term im­pli­ca­tions for the econ­omy, in­clud­ing the banking sec­tor. All the par­tic­i­pat­ing banks in the cur­rent round of sur­vey have wel­comed the de­mon­eti­sa­tion move in light of its long-term ben­e­fits for the econ­omy.

There has been a sig­nif­i­cant surge in CASA de­posits of most banks post de­mon­eti­sa­tion, which has given a strong boost to liq­uid­ity and low­ered their cost of funds. It has also en­cour­aged banks to lower their MCLR across all tenures. In fact, many banks have low­ered the MCLR in the month of De­cem­ber 2016, de­spite no change in the repo rate by the RBI in its last mon­e­tary pol­icy re­view. Dur­ing the six-month pe­riod July-De­cem­ber 2016, a ma­jor­ity (75%) of par­tic­i­pat­ing banks have re­duced their MCLR by up to 30 bps, while al­most 19% have re­duced it by more than 40 bps. Most of the par­tic­i­pat­ing banks also ex­pect their op­er­at­ing mar­gins to im­prove.

The sur­vey re­veals that there has been a slow­down in credit de­mand as con­sump­tion has been af­fected in the short-term ow­ing to cash short­age post de­mon­eti­sa­tion. How­ever, many re­spon­dents ex­pect credit de­mand to im­prove af­ter three to six months, as eco­nomic ac­tiv­i­ties are ex­pected to pick up by that time.

Banks have also wel­comed the in­creased em­pha­sis on the dig­i­tal­iza­tion of the banking ser­vices af­ter the de­mon­eti­sa­tion drive and in­di­cated that this will aid re­duc­tion in cost of trans­ac­tions for banks over the long term. To fur­ther pro­mote tran­si­tion to a dig­i­tized and less-cash so­ci­ety, sur­vey re­spon­dents have em­pha­sized on the need for in­cen­tiviz­ing the adop­tion of dig­i­tal modes of pay­ment. They also ex­pect the govern­ment to take steps to strengthen the dig­i­tal in­fra­struc­ture and con­nec­tiv­ity across the coun­try. Sug­ges­tion has also been made to lever­age post of­fices, public trans­porta­tion, pan­chay­ats and dis­trict of­fices in fur­ther­ing the im­ple­men­ta­tion of dig­i­tal drive for trans­ac­tions.

From the banking sec­tor's per­spec­tive, the re­spon­dents have iden­ti­fied spe­cific mea­sures to pro­mote dig­i­tal trans­ac­tions. These in­clude – en­hanc­ing pen­e­tra­tion of banking fa­cil­i­ties in un­banked ar­eas and si­mul­ta­ne­ously cre­at­ing aware­ness on various modes of dig­i­tal trans­ac­tions in­clud­ing their safety and se­cu­rity fea­tures; in­tro­duc­ing in­no­va­tive and con­ve­nient modes of dig­i­tal

pay­ments, and build­ing up ca­pa­bil­i­ties to ac­com­mo­date wide range of re­quire­ments for grow­ing co­hort of cus­tomers, in terms of prod­ucts, higher skilled staff, in­ter­ac­tive on­line chan­nels, etc.

Banks were also asked their views on reg­u­lat­ing the fin­tech in­dus­try that has seen rapid growth in re­cent times. The par­tic­i­pat­ing banks agreed that there is a need for mon­i­tor­ing and reg­u­la­tion of fin­tech in­dus­try to en­sure cus­tomer pro­tec­tion. They be­lieve that an ap­pro­pri­ate body needs to be ap­pointed as the reg­u­la­tor for fin­tech in­dus­try. Ad­di­tion­ally, there need to be guide­lines and reg­u­la­tions set for due dili­gence, data pro­tec­tion, cy­ber se­cu­rity and client pro­tec­tion. Other sug­ges­tions in­clude manda­tory In­for­ma­tion Sys­tems Au­dit for fin­tech com­pa­nies and a statu­tory re­quire­ment to keep a cer­tain amount of cash with the reg­u­la­tor for re­solv­ing claims, if any.

For the banking sec­tor, the big­gest de­mand is for ad­di­tional cap­i­tal infusion by the govern­ment in public sec­tor banks, to pro­vide a boost to credit growth. Other key sug­ges­tions in­clude mea­sures to fast track NPA res­o­lu­tion; cre­ation of a Cen­tral Cor­po­rate Repos­i­tory; and in­ter­est pay­ment on CRR bal­ance.

Amongst the in­dus­tries and sec­tors that con­tinue to see rise in credit de­mand, 53% of the re­spon­dent banks re­ported high de­mand from in­fra­struc­ture sec­tor, which is same as that in the pre­vi­ous round of the sur­vey. The other key sec­tors which saw a rise in long term credit dur­ing Ju­lyDe­cem­ber 2016 pe­riod in­cluded real es­tate, tex­tiles, auto com­po­nents and met­als, iron & steel.

The sur­vey also re­veals that iron & steel, in­fra­struc­ture and tex­tiles con­tinue to ac­count for a large con­cen­tra­tion of NPAs. For in­fra­struc­ture sec­tor, while a ma­jor­ity of re­spon­dents (50%) have re­ported a rise in NPA lev­els dur­ing the pe­riod July-De­cem­ber 2016, 29% of re­spon­dents have in fact re­ported a de­cline in NPA lev­els dur­ing this pe­riod.

On the whole, the num­ber of banks re­port­ing a rise in the level of NPAs is lower in the cur­rent round of the sur­vey as against the pre­ced­ing round. While 76% of par­tic­i­pat­ing banks re­ported a rise in the level of NPAs dur­ing the pe­riod July-De­cem­ber 2016, 85% had re­ported so for the pre­ced­ing six month pe­riod. A large pro­por­tion of par­tic­i­pat­ing banks (44%) have also re­ported a re­duc­tion in re­quests for re­struc­tur­ing of ad­vances dur­ing the pe­riod July-De­cem­ber 2016.

Go­ing for­ward, the key sec­tors iden­ti­fied by the par­tic­i­pat­ing banks which could see a greater de­mand for long term credit in­clude in­fra­struc­ture (cited by 76% re­spon­dents), au­to­mo­biles (cited by 29% re­spon­dents) and food pro­cess­ing (cited by 29% re­spon­dents). Other sec­tors ex­pected to see higher de­mand for long term credit in­clude real es­tate, phar­ma­ceu­ti­cals and tex­tiles.

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