Saddled with burgeoning bad loans, banks are exercising caution while taking exposure to large enterprises due to apprehension on assets quality, lower economic growth and sector-specific risks, as per the Ficci-Indian Banks Association Banking Survey.
According to the survey, 41 per cent of respondent banks reported tightening of credit standards for large enterprises, as against 48 per cent in the last round, and 64 per cent in the survey round previous to that — indicating continuous improvement in funding. As much as 59 per cent of the respondents reported the credit standards having remained same as against 48 per cent of the banks reporting the same in the last round. “None of the respondent banks have eased the standards for large enterprises in the current round,” it said.
For small and medium enterprises (SMEs), as against 17 per cent of the respondent banks reporting easing of credit standards in the last round, 44 per cent of the respondents have reported the same in the current survey round, and the same proportion of respondents (44 per cent) have also reported no change in credit standards. “Both the government and the RBI have taken measures to encourage banks to lend more to MSMEs,” the survey said.
“Of the respondents reporting a tightening in credit standards for large enterprises, 89 per cent have cited a rise in NPAs, 67 per cent cited expectations of weak economic growth, 44 per cent cited higher sector-specific risk and 11 per cent cited increase in cost of funds as factors for doing so. All the above cited reasons have showed an increase in the number of responses,” it said. None of the respondents cited increased competition as a reason behind the tightening of credit standards as against 8 per cent having reported it in the previous round, the survey said.
Banks are of the view that rural distress should be addressed through laying emphasis on rural infrastructure development and stimulating demand by increasing the pace of fund transfers under PM-Kisan and Mahatma Gandhi National Rural Employment Guarantee Act scheme. Some of the respondent banks also suggested that the government should undertake structural land and labour reforms, while taking measures to increase job creation in the country, the survey said.
According to the IBA survey, a large number of participating bankers have mentioned that addressing the taxation issues by launching GST 2.0 regime and bringing a direct tax code should be the top priority of the government at this moment.
The participating bankers also shared their views on MSME lending challenges in India and the measures that banks can take to increase lending to this important segment of the society which contributes nearly 45 per cent of the manufacturing output and provides employment to over 100 million people. Some of the challenges that the responding banks shared about MSME lending include improper maintenance of financial statements, high cost of processing MSME loans relative to their loan size, lengthy loan processing exercise, lack of technical understanding and limited affordability of digital payment platforms that restricts the use of digital payment options by MSMEs, and entrepreneurial risks faced by MSMEs, the survey said.
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