FICCI-IBA survey: Banks say NPAs may rise in MSME sector in next 6 months

Retail trade, hospitality, aviation at high risk; long-term credit demand growing for infra, chemicals, food processing, and iron and steel sectors

The pressure on asset quality of loans to micro small and medium enterprises (MSMEs) is set to increase, leading to a rise in non-performing assets (NPAs) in this segment in the next six months, according to a survey by the Federation of Indian Chambers of Commerce & Industry and the Indian Banks’ Association.

Some of the high NPA risk sectors identified by respondent bankers in the survey included aviation, tourism and hospitality, power, and retail trade. Sixty five per cent of the respondent banks expect NPAs in the MSME sector to increase in the next six months.

The fifteenth round of the FICCI and IBA survey was carried out for the January to June period. A total of 25 banks, including public, private sector, and foreign ones participated in the survey. These banks together represent about 76 per cent of the banking industry, as classified by asset size.

According to rating agency ICRA, the rising interest rates and input cost inflation could impact debt-servicing ability of borrowers in financial year 2022-23 (FY23). Those borrowers in the longer-tenor loan segments, could see an increase in their equated monthly instalments (EMIs) as the repo rate goes up further. This could also affect the debt servicing ability for retail/MSME borrowers.

More than half of the respondents expect the gross NPA levels to be below eight per cent by the end of December 2022. About 33 per cent of the respondents felt that gross NPA levels would be in the 8-9 per cent range.

The stress test by the Reserve Bank of India indicated that the GNPA ratio of all scheduled commercial banks (SCBs) may improve from 5.9 per cent in March 2022 to 5.3 per cent by March 2023 under the baseline scenario.

Despite a muted start to the year because of the spread of the Omicron variant of the coronavirus, economic activity in India remains in recovery mode. Growth is seen broad basing with most sectors operating at pre-pandemic levels. The services sector, which was most severely impacted by the pandemic, is also seen gaining traction.
 

The survey findings show that long-term credit demand has been growing for sectors such as infrastructure, chemicals, food processing, metals, iron and steel and petroleum products.