Banks see decline in NPAs, but may go up in H12021

Bankers report reduction in NPAs in spite of covid, but they are not over optimistic:

The NPA levels of banks in India have seen an improvement in the second half of 2020, with 50% of respondent banks in the FICCI-IBA Bankers’ Survey for July-December 2020 reporting a decline in NPAs. However, the survey cautions that NPAs are expected to increase in the first half of 2021. A bank-wise analysis shows that major improvement in NPAs has come from the public sector banks, with about 78% of the participating public sector banks reporting a reduction in NPA levels. The survey has attributed this to an improvement in asset quality, especially with improved recoveries and higher writeoffs by several banks.

Some 20 banks, including public sector, private and foreign banks, participated in the 12th round of the FICCI-IBA Survey. These banks together represent about 59% of the banking industry, as classified by asset size.

COVID-RELATED DEFAULTS

Another factor contributing to this scenario of decreased NPAs is that due to the pandemic, the Supreme Court had ordered all banks not to classify covid related defaults as NPAs.

SECTORS PRONE TO NPA

Almost all the participating banks indicated that the sectors that continue to show high level of NPAs are infrastructure, metals, iron & steel, real estate and engineering goods. The other high NPA risk sectors identified by majority of respondent banks include tourism and hospitality, MSMEs, aviation and restaurants. As much as 55% of respondents believed NPAs would rise substantially in tourism and hospitality sector, while another 45% reported that NPAs are likely to increase moderately in this sector. Similarly, 84% respondents expected an increase in NPAs in the MSME sector while almost 89% respondents expected restaurants to see an increase in NPAs. In terms of outlook, nearly 68% of respondent banks expect the NPA levels to be above 10% in first half of 2021 and 37% of respondents in fact expect NPA levels to be upwards of 12%.

RECOVERY ON COURSE

A bright spot that respondents in the survey saw was the fact that almost a year into the pandemic, economic recovery has started gaining momentum. “High-frequency indicators show demand is holding up. Bank credit is also seeing improvement, as indicated by RBI’s statistics. Long term credit demand has been growing for sectors such as infrastructure, pharmaceuticals and food processing,” the findings say.

Particularly for the pharma sector, 45% of the respondents have indicated an increase in long term loans in the current round of survey as against 29% in the previous round.

The respondents also fi nd t hat infrastructure and pharmaceuticals would see an increase in long term credit even in the first half of 2021. Other sectors