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Banking Regulation Act could resolve NPAs, says FICCI


Public Banks’ NPAs continue to increase.

Banks in India were confident that the recent amendment to the Banking Regulation Act will help them with Non-Performing Assets (NPAs) resolutions, according to a survey.

However, NPAs continue to increase, adding to the challenges of operating in a mega market where multi-billion dollar infrastructure projects are calling for fresh funding.

A recent survey had 91% respondents reporting an increase in NPAs among public sector banks (PSBs), said the Federation of Indian Chambers of Commerce and Industry (FICCI) in a release on the survey of 20 banks, representing 64% of the banking industry, as classified by asset size.

Comparatively, the private sector banks and foreign both have reported mixed experiences in India. Seventy-one per cent of the private Indian banks and 50 per cent of the foreign banks have reported increase in NPAs during January-June 2017.

Fifty per cent of the respondents to the survey said Metals, Infrastructure and Textiles industries have witnessed high level of NPAs.

Forty per cent of the respondents mentioned an increase in requests for restructuring of advances as against 18% in the previous round of the survey.

The survey has been conducted at a time when NPAs are at a worrisome position, especially for the Public Sector Banks.

The amendment to section 35 of the Banking Regulation Act enables banks to resolve the NPA problem.

The participating banks have given several suggestions for dealing with the issue of stressed assets.

One of the suggestions is to set up industry committees to determine valuation of large stressed accounts and get large Public Sector Units (PSUs) in respective sectors to bid for the said accounts at such valuations.

The banks have recommended easing of provisioning norms for stressed assets.

They have also urged for strengthening the legal infrastructure to facilitate quicker disposal, such as setting up of more benches of Debt Recovery Tribunal and National Company Law Tribunal.

A large majority of respondents have not changed their credit standards for large enterprises or Small and Medium Enterprises (SMEs) in first half of 2017.

However, about 35% of the respondents reported tightening of credit standards for large enterprises in first half of 2017 and about 40% respondents expect further tightening in the next six months.

On the other hand, about 15% of respondents have eased the credit standards for SMEs in the first half of 2017 and about 20% expect further easing of standards in the next six months.

During the first half of 2017, 75% of the respondent banks have reduced their Marginal Cost of Funds based Lending rate (MCLR), with 45% of banks reducing it by more than 50 basis points, aided by adequate liquidity and low-cost deposits.

The recent reduction in MCLR can also be attributed to gradual reduction in deposit rates which reduced the cost of funds for the banks.

Infrastructure sector continues to witness the largest increase in long term loans, according to 60% respondent banks.

This was followed by Real Estate and Textiles.

Sectors like Cement, Auto and Auto Components, non-banking financial companies (NBFCs) and Food processing were among other sectors that sought greater long-term credit during January-June 2017.

In the next six months (July-December 2017), participating banks expect sectors like infrastructure, automobiles and pharmaceuticals to drive credit growth.

A large majority of participating banks have welcomed the suggestion from Reserve Bank of India about setting up of specialized Wholesale and Long-Term Finance Banks.

Such institutions are expected to ease pressure off commercial banks, help them match tenure of their asset- liabilities, and improve quality of lending due to better expertise in evaluating infrastructure projects.

Bankers gave mixed responses when asked their views on consolidation of other Public Sector Banks post-State Bank of India merger.

While some banks are supportive of moving ahead with consolidation of banks in current times, others have expressed concerns related to timing and have suggested that priority should be given to resolve the problem of mounting NPAs and measures to raise capital.

Some participating banks suggested exploring avenues of privatization alongside merger of PSBs.

For instance, a Bank Investment Company (BIC) with a holding structure that provides greater autonomy to boards and reduces government shareholding to below 51% in select PSBs can be considered.

It was also suggested that the government may review the impact of consolidation of SBI group after a few years, and thereafter further consolidation can be taken up on selective basis.

Banks were also requested to present their views on the idea of Bank Account Number portability (similar to a Mobile Number Portability) that had been suggested by RBI Deputy Governor S.S. Mundra.

Banks acknowledged that such initiative should be approached cautiously and cited technological challenges and requirement of heavy IT infrastructure investments as key issues in adoption of such initiative.

Banks will need to adopt a standard approach for account number calibration, which currently range from 11 to 16 digits.

Such standardisation will require heavy investment in IT infrastructure, said the survey which is conducted twice every year.

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