Bank NPAs likely to increase over 10% in first half of 2021, says survey

The Indian banks may see a sharp surge in non-performing assets (NPAs) in the first half of 2021, says a FICCI-IBA survey.

According to a media report, the survey was conducted by FICCI-IBA between July and December 2020.

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As per the findings of the survey, while the asset quality of banks saw some improvement in the second half of 2020, a looming NPA crisis could make a severe impact on the banking sector of the country later this year.

The survey involved 20 banks from both the public and private sectors, including some foreign banks operating in India.

Half of the banks reported a decline in NPAs in the second half of 2020.

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The report said, nearly 78% of the state-run banks, which participated in the survey revealed that NPA levels reduced in comparison to the first half of 2020.

According to the survey, in terms of outlook, nearly 68% of the banks expected their NPA levels to increase over 10% in the first half of 2021.

Nearly 37% of the respondent banks expected NPA levels to increase by over 12%, indicating that banks are aware of the looming bad loan crisis that is likely to hit them in the second half of the financial year 2022.

The Financial Stability Report released by the Reserve Bank of India (RBI) in January 2021 made it clear that gross NPAs of banks may increase 13.5% by September 2021 under the baseline stress scenario.

As per the survey, around 55% of the respondents believe that NPAs would rise substantially in the tourism and hospitality sectors while 45% of them said NPAs will rise moderately.

The survey revealed that many MSMEs requested the banks for a one-time restructuring of their loans after the RBI announced the scheme in August last year.

During the survey, 84% of the respondent banks expected an increase in MSME defaults as countless small businesses have failed to repay banks in the wake of the Covid19-induced economic crisis.

“An overwhelming 85 per cent of the respondent banks have cited an increase in requests for the restructuring of advances as against 39 per cent in the last round,” the survey said.