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

Pressure on the asset quality of loans to micro, small and medium-sized enterprises (MSMEs) will increase, leading to an increase in non-performing assets (NPAs) in this segment in the next six months. months, according to a survey by the Federation of Indian Chambers of Commerce and Industry and the Association of Indian Banks.

Some of the high-risk NPA sectors identified by bankers surveyed in the survey included aviation, tourism and hospitality, energy, and retail. Sixty-five percent of responding 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 period from January to June. A total of 25 banks, including those from the public, private and foreign sectors, participated in the survey. These banks together represent about 76 percent of the banking industry, based on asset size classification.

According to rating agency ICRA, rising interest rates and input cost inflation could affect borrowers’ ability to repay debt in fiscal year 2022-23 (FY23). Those borrowers in the longer term loan segments could see an increase in their matched monthly facilities (EMI) as the buyback rate increases further. This could also affect the debt service capacity of retail/MSME borrowers.

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

The stress test conducted by the Reserve Bank of India indicated that the GNPA ratio of all registered commercial banks (SCBs) may improve from 5.9% in March 2022 to 5.3% in March 2023 in the reference scenario.

Despite a subdued start to the year due to the spread of the Omicron variant of the coronavirus, economic activity in India remains in recovery mode. Growth is seen as broad-based with most sectors operating at pre-pandemic levels. The services sector, which was the most affected by the pandemic, is also gaining ground.

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

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