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Government Banks beat Private Banks in NPA recovery


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A recent survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Banks’ Association (IBA) has found that public sector banks in India are performing better than their private sector counterparts when it comes to non-performing assets (NPAs). NPAs refer to loans or advances that are on the verge of default.

The survey revealed that a significant majority (77 percent) of the respondent banks reported a decrease in NPA levels over the past six months. Specifically, all the public sector banks that participated in the survey reported a reduction in NPA levels, while 67 percent of the participating private sector banks cited a decrease.

Interestingly, none of the public sector banks or foreign banks reported an increase in their NPA levels during the same period, while 22 percent of the private banks did report an increase.

The survey also identified sectors that continue to have high levels of NPAs, including food processing, textiles, and infrastructure.

In terms of the future outlook, the respondent banks expressed optimism about the asset quality prospects. Over half of the banks believe that gross NPAs will range from 3 percent to 3.5 percent over the next six months, while 14 percent expect the range to be between 2.5 percent and 3 percent.

The survey also highlighted sectors that are expected to continue experiencing NPAs in the coming months, such as textiles and garments, agriculture, and gems and jewelry.

The survey was conducted from July to December 2023 and included banks that represent about 77 percent of the Indian banking industry based on asset size.

In addition, the survey found a decline in requests for restructuring of advances in the Indian banking sector. Loan restructuring is a method used by borrowers and lenders to prevent defaulting on current debts by renegotiating loan terms. The survey revealed that 44 percent of respondents reported a decrease in restructuring requests compared to the previous round, while 17 percent reported an increase.

Bank-wise analysis showed that 50 percent of public sector banks reported a decrease in restructuring requests, while 30 percent reported an increase. Among private sector banks, 50 percent cited a decrease, while only 10 percent reported an increase. Foreign banks did not report any change in restructuring requests.

The survey also highlighted factors cited by respondent bankers that contribute to the expectation of further improvement in asset quality over the next six months. These include a resilient domestic economy, increased credit growth supported by government capital expenditure, a rising provision coverage ratio, restructuring and rehabilitation of eligible stressed units, and a robust recovery mechanism.

Overall, the survey provides insights into the performance of public and private sector banks in India regarding NPAs and requests for loan restructuring, as well as expectations for the future.

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