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Bank liquidity issue continues, NPAs on decline, says Ficci-IBA survey

The survey witnessed the participation of 23 banks, including public sector, private sector, foreign and small finance banks, which together represent over 65% of the banking industry, as classified by asset size.

twitter-logoJoe C Mathew | February 18, 2019 | Updated 13:46 IST
Bank liquidity issue continues, NPAs on decline, says Ficci-IBA survey

Indian banks continue to face considerable liquidity constraints though there is improvement on the non performing assets (NPA) front, says the half yearly survey conducted by the Federation of Indian Chambers of Commerce & Industry (FICCI) and Indian Banks' Association (IBA).

The eighth round of the FICCI-IBA survey for the period July to December 2018 witnessed the participation of 23 banks including public sector, private sector, foreign and small finance banks, which together represent over 65 per cent of the banking industry, as classified by asset size.

Read More: NPAs Decoded

The second half of 2018 witnessed considerable liquidity constraints owing to various factors including some Public Sector Banks under PCA framework, stress in the NBFC sector, as also due to expansion of currency in circulation in quarter 3 of the fiscal year -- fueled by wedding season, festivals, forex interventions following higher oil prices and FPI outflows, and tax outflows, the survey points out.

"The liquidity scenario in quarter three of current fiscal year has remained in deficit and though it has slightly improved off-late, but liquidity could remain tight even in quarter four, owing to year end liquidity demands, tax outflows, higher fiscal deficit and run-up to elections," it says. Respondent banks agreed that RBI has taken adequate measures, by way of Open Market Operations (OMO) to maintain liquidity and suggested that RBI should continue OMO purchases for remaining period of the fiscal year as well. Participating bankers also suggested cutting of CRR by the RBI to bring more liquidity in the market to support growth. Other suggestions included greater capital infusion by government in PSBs, relaxation of PCA norms and allowing a special liquidity window for NBFCs.

However, in contrast to last few rounds of surveys, majority (54 per cent) of reporting Public sector banks cited a reduction in their non performing asset levels, with only 38 per cent citing an increase. "None of the respondent banks have cited an increase in the requests for restructuring of advances. While 39 per cent have stated a fall in number of such requests, 61 per cent have reported no change in the number of such requests," it states.

Infrastructure continues to remain the key sector with high NPAs, with over 90 per cent of respondents citing so, however 37 per cent of such respondents have reported a reduction in NPAs of the sector during the period July to Dec 2018 and 42 per cent of these respondents have reported an increase in NPAs as against 79 per cent citing an increase in the preceding round of survey.

Participating bankers mentioned that they have had a positive experience in recoveries since the implementation of Insolvency and Bankruptcy Code (IBC). However, it has been highlighted that the resolution process is being delayed owing to limited infrastructure in NCLT and rising cases of appeals. Banks therefore suggested that there is a need to improve the capacity by increasing staff and establishing more NCLT benches across the states. They also sought the introduction of some mechanism to reduce unwanted litigations; consider introducing provisions like DRT wherein a percentage of the loan outstanding is insisted while filing an appeal. This will ensure speedy resolution of genuine cases.

The respondent bankers were also of the view that the recent recapitalisation plan of the government will further help in improving the balance sheets of public sector banks and help them write-off some of their current bad loans.

Going forward, participating bankers believe that sectors with high credit growth will be infrastructure, cement, metals, chemicals, food processing, NBFCs and Engineering goods.

Also Read: Parliamentary panel to assess if RBI lacks powers to tackle NPAs

PSBs recover Rs 60,730 crore of bad loans in April-September

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