Textiles, infrastructure sector may see high NPA levels: Ficci-IBA survey

While expecting overall asset quality to improve over the coming six months, lenders have flagged risks of high Non-performing Assets (NPA) in sectors like textiles, food processing and infrastructure, according to the FICCI-IBA survey.

In the survey, for the January to June 2024 period, about 76 per cent of respondents have cited textile as a sector with high NPA levels. This was followed by 59 per cent of them reporting infrastructure and 53 per cent identifying food processing as a segment with high incidence of bad loans.

“Some of the sectors that may continue to show NPAs over next six months include agriculture, textiles and garments, MSMEs, and gems & jewellery,” said the survey released on Tuesday.

Bankers said these sectors stand out from the overall trend. The adverse international markets have impacted the repayment capacity of some textile and garments units and the sector-specific conditions would only change gradually for better.

A total of 22 banks, including public sector, private sector and foreign banks, participated in the survey by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA). These banks together represent about 67 per cent of the banking industry, as classified by asset size.

Respondent banks continued to remain sanguine about the asset quality prospects in the current round of the survey, cushioned by policy and regulatory support.

Over half of the respondent banks in the current round believe that Gross NPAs would be in the range of 2.5-3 per cent over the next six months.

The latest Financial Stability Report of RBI, released in end June, showed scheduled commercial banks’ gross NPA at 2.8 per cent, and net NPA at 0.6 per cent as on end March 2024.

Resilient domestic economy accompanied by upgraded and improved credit assessment, effective and continuous credit monitoring, lower slippages, high write-offs and healthy capital position of banks were some of the key factors cited by respondent bankers who expect asset quality to further improve over the next six months, it added.

Referring to the overall business environment, FICCI-IBA survey observed the Indian economy and the banking sector remain robust and resilient. With improved balance sheets, banks are supporting economic activity through sustained credit expansion. However, credit growth is outpacing deposit growth, which could lead to liquidity challenges for the banking system.

Raising deposits to keep pace with the loan growth and keeping the credit cost low remains on the top of banks’ agenda, it added.