The tenth round of the FICCI-IBA survey was carried out for the period from July to December 2019. A total of 18 banks consisting of the public sector, private sector, and foreign banks participated in the survey.
These banks together represent about 50 per cent of the banking industry, as classified by asset size. The 10th FICCI-IBA survey asked bankers about their views on the measures that would help improve the economic situation in the country.
Keeping in view the ongoing economic slowdown, bankers were asked about their views on the steps that the government should take to help the economy come out of the current situation.
According to the banks, rural distress should be addressed through a focus on rural infrastructure development and stimulating demand by increasing the pace of fund transfers under the PM-Kisan and MGNREGA schemes.
Some of the respondent banks also suggested that the government could undertake structural land and labour reforms, while taking measures to increase job creation in the country. A large number of participating bankers mentioned that addressing the taxation issues by launching GST 2.0 regime and bringing a direct income tax code should be the top priority of the government at this moment.
The participating bankers also shared their views on ways to increase the flow of funds to the MSME sector, which forms a crucial constituent of our economy.
These include suggestions on capacity-building of MSMEs through various training programmes, development of an online platform to help banks accelerate the SME lending process, development of creative ways of credit assessment like using psychometric testing, cash flow estimates or Qualitative Credit Assessment (QCA) and keeping NPA of this sector under check through measures like reclassification of IRAC norms for MSMEs, due diligence, regular follow up, strict monitoring of the end-use of funds, et cetera.
In the current round of Bankers’ survey, a relatively lower proportion of responding banks have reported a decline in the level of NPAs. As compared to the first half of 2019, in which nearly 52 per cent of the respondents had reported a decline in the NPA levels, the proportion of respondent banks citing a reduction in NPAs in the current round of survey has reduced to 39 per cent.
The proportion of respondent banks reporting a rise in NPA levels on the other hand has shown a slight increase to 28 per cent, as against 26 per cent in the preceding survey.
A higher proportion of respondent bankers have indicated high levels of NPAs in sectors such as infrastructure, metals and iron & steel, and engineering goods and textiles,
For instance, while about 73 per cent and 55 per cent of the respondents mentioned infrastructure and metals, and iron & steel as sectors with high levels of NPAs respectively in the last survey round, the proportion of respondents saying so have increased to 93 per cent and 60 per cent in the current round of survey.
Amongst the respondents who stated that infrastructure was showing high NPA levels, about 36 per cent of these respondents have reported a further increase in NPA in this sector during the July-December 2019 period.
The survey also shows that there has been a decrease in the Marginal Cost of Funds based Lending Rate (MCLR), with about 11 per cent of the respondents having reported a reduction in MCLR by more than 50 bps, 28 per cent of the respondents reporting reduction by 40-50 bps, 17 per cent of the respondents reporting a reduction by 30-40 bps, another 17 per cent by 20-30 bps and 22 per cent by 0-20 bps.
In case of term deposits above one year, 67 per cent of the responding banks have decreased interest rates by up to 50 bps, while 28 per cent have decreased the rates by more than 50 bps.
For term deposits below one year, majority respondents (67 per cent) have reduced the interest rates, while 28 per cent have kept the interest rate unchanged. With a view to allowing faster transmission of rate cuts to consumers, the RBI has made it mandatory for banks to link all retail and SME loans to an external benchmark effective from 1 October 2019. Most of the banks have adopted repo rate as the External Benchmark based Lending Rate (EBLR).
During October-December 2019, the Weighted Average Lending Rates (WALR) of domestic (public and private sector) banks on fresh rupee loans declined by 18 bps for housing loans, 87 bps for vehicle loans and 23 bps for loans to micro, small and medium enterprises (MSMEs).
Overall, the transmission through EBLR is encouraging. In the current round of survey, bankers were asked to share their views about the response of customers regarding migrating to EBLR from MCLR and the measures that the banks have taken to enable this shift.
A majority of banks reported positive response of borrowers towards shift to EBLR as they find EBLR linked rate of interest more attractive. Banks have taken wide-scale publicity measures to create awareness about the EBLR.
Banks are also offering easier switching process for conversion of loans from MCLR to EBLR. In terms of the composition of loans and advances, the share of corporate loans of banks has increased to 58 per cent as against 55 per cent in the last round.
Consecutively, the share of retail loans has reduced from 42 per cent as against 45 per cent in the preceding round. Bankers were also asked about their views and experience on the co-lending model of lending between banks and NBFCs permitted by RBI.
A majority of the respondent banks reported that the model is in the early stages of implementation and hence has not yet led to any significant improvement in the credit flows to the priority sector. Some responding banks also reported that there are certain challenges with the model, which has restricted its take off at the desired level.
For instance, banks follow the concept of guarantor in MSME loans, whereas NBFCs prefer concept of co-borrower, difference in Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) coverage norms of banks and NBFCs, different criteria of loan assessment followed by banks and NBFCs and difference in method of interest calculation of banks and NBFCs, and integration of systems of both the bank and NBFCs.