NPAs, less debt appetite road blocks for bank lending despite deposit pile-up on demonetisation, says study
Despite deluge of deposits in banks following demonetisation, a high-level of non-performing assets and less appetite for loans from the industry would come in the way of increased bank lending instead of bond yields falling even below the policy interest rates, a study said on Thursday.
Assocham and Care Ratings' joint study on the 'Indian Bond Market', noted that the banks are reluctant to lend to infrastructure projects. "It is in the infrastructure sector which needs to be revived first for a positive ripple elsewhere," the industry body said in a statement.
However, the banks' inability to lend to this sector and other over-leveraged industries like metals, textiles and engineering, has resulted in growth stagnation, the study noted.
While it strongly advocated popularity of the corporate bond market more so because of the cheap source of funding infrastructure and other critical projects, the ability of the banks to lend in the face of excessive non-performing and stressed assets and demand for the credit remain vital issues.
"Public sector banks have 14.5 per cent stressed loans of their total loan book while the private and foreign banks have this figure at 4.5 per cent," the statement said.
It has been observed that most of the stressed assets were concentrated in sectors like metals, mining, infrastructure, textiles and aviation that constrained the overall economic growth. Infrastructure contributed to 32.8 per cent of the total stressed loans in the fiscal 2015-16, it added.
The study also said that the corporate bond market which at $287 billion or 14 per cent of the country's GDP as of FY 2016 can grow well particularly on account of weaknesses in the banking sectors that have been plagued by high levels of stressed assets.
"The Indian corporate bond market has a large untapped potential which has to be harnessed effectively," Care Ratings Managing Director and CEO Rajesh Mokashi said.
Mapping profile of overall bond market, the study said while India boasts of a world-class equity market, its bond market is still relatively under-developed.
"As in most countries, India too has a more developed and mature government securities market relative to the corporate bond market. The government securities have been registering sustained growth over the years, the corporate bond market on the other hand, has been more or less stagnant in the last decade," the study added.
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