Banks' asset quality to improve in next six months as economy grows: Survey

FICCI, Indian Banks' Association survey had 23 respondents represent 77% of industry by asset size

Banks expect asset quality to improve further in the next six months on the back of restructuring of eligible stressed units, a resilient economy and credit growth strengthening, said a survey report on Thursday.

The FICCI-IBA Bankers survey said more than half the respondents believe gross non-performing assets (GNPA) would be in the range of 3 per cent to 3.5 per cent in the next six months. As many as 14 per cent of respondents believed NPA levels would be in the range of 2.5 per cent to 3 per cent.

One Time Settlement proposals, a robust recovery mechanism, and the SARFAESI Act, which allows banks and other financial organisations to recover bad loans, are helping in improving asset quality, said respondents.

The survey was conducted by the Federation of Indian Chambers of Commerce and Industry and the Indian Banks' Association among 23 respondents, including public sector, private sector and foreign banks, between July and December 2023. These banks together represent about 77 per cent of the industry, classified by asset size.

Banks were asked about their preparedness for the eventual adoption of Expected Credit Loss (ECL)-based provisioning. The majority of the banks said they were well-positioned for a smooth transition to the ECL regime. They have put in place models and frameworks for ECL-based provision computations which are being reviewed and validated internally, according to survey findings.

The survey said that the outlook for non-food industry credit over the next six months is optimistic, with 41 per cent of the participating banks expecting non-food industry credit growth to be above 12 per cent. About 18 per cent feel that non-food industry credit growth would be in the range of 10-12 per cent. As many as 36 per cent of the respondents said credit growth in the non-food industry would be in the range of 8 per cent to 10 per cent.