MSME sector NPAs may rise in the near future: FICCI-IBA survey of banks

Federation of Indian Chambers of Commerce & Industry, Indian Banks' Association

The pressure on the asset quality of loans to micro small and medium enterprises (MSMEs) is expected to increase, leading to an increase in non-performing assets (NPAs) in the market over next six months, according to a survey conducted by the Federation of Indian Chambers of Commerce & Industry and the Indian Banks’ Association.

In the survey, respondent bankers identified a number of industries with high NPA risk, including aviation, power, tourism and hospitality, and retail trade. 65 percent of the banks that responded anticipate an increase in NPAs in the MSME sector over the next six months.

The FICCI and IBA survey’s fifteenth round was conducted from January to June. 25 banks in total, including public, private, and foreign institutions, took part in the survey. According to the classification of the banking industry by asset size, these banks collectively account for about 76 per cent of it.

According to the Reserve Bank of India‘s stress test, under the base case scenario, the GNPA ratio of all scheduled commercial banks (SCBs) may decrease from 5.9% in March 2022 to 5.3% in March 2023.

The spread of the Omicron variant of the coronavirus has dampened the start of the year, but economic activity in India is still recovering. The majority of sectors are operating at pre-pandemic levels, and growth is generally observed. The industry that was most severely affected by the pandemic, the services sector, is also expected to grow.

The results of the survey demonstrate a rising demand for long-term credit in industries like infrastructure, chemicals, food processing, metals, iron and steel, and petroleum products.

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