Increasing levels of gross NPAs have reduced the banking sector's capacity to lend: Economic Survey

New Delhi, Feb 26 (KNN) Increasing levels of gross Non-Performing Assets (NPA) have reduced the banking sector's capacity to lend, said the Economic Survey 2015-16 adding that sluggish growth and increasing indebtedness in some sectors of the economy have impacted the assets quality of banks and this is a cause of concern.

The Economic Survey also expressed concern that the share of industry has come down significantly. The decline reflects the muted markets sentiments leading to slowdown in private investment demand and industrial growth, poor earnings growth of the corporate sector, and risk aversion on the part of the banks, said the Survey. 

The Economic Survey 2015-16 presented today in the Parliament by the Union Finance Minister Arun Jaitley states that despite volatility in global financial markets, the Indian equity market has been relatively resilient during this period compared to the other major emerging market economies.

The market has rebounded time and time again, and it is hoped that as the global financial market settle down, India can become the leading investment destination owing to its robust macroeconomic fundamentals. Banking sector gross credit deployment has been sluggish duirng the financial year, said the Survey.

Financial inclusion is proceeding apace under the Pradhan Mantri Jan Dhan Yojana while the Atal Pension Yojana is extending the reach of the New Pension Scheme.

The Economic Survey 2015-16 states that the agreement on monetary policy framework signed between the Government and the Reserve Bank of India in February 2015 shape the monetary policy stance in 2015-16.

Economic Survey 2015-16 states that during the current financial year, year on year growth in gross bank credit outstanding has remained around 10%. The sluggish growth can be attributed to incomplete transmission of the monitory policy, unwillingness of banks to lend credit on account of rising NPAs, and more attractive interest rates for borrowers in the bond markets.

The year on year growth in time deposits fell to 10.6% in December 2016. This is because household saving are channelized to other areas like gold and real estate. The slowdown in time deposits has been slowing the growth of bank credit as time deposits remain the most important and cheaper source of banks funding. 

The credit off take by the industry sector for the bank has been slowing. The deployment of gross bank credit to industry grew at 5.3% year on year in December 2015. Gross bank credit to the services sector grew at sub 7% in May – November 2015 though it increased to 9.2% in December 2015.

The agriculture sector too saw a downturn from November 2014. Only the personal loans segment, which benefited from the repo rate cut, has been showing accelerating growth from January 2015. The analysis of non-food credit shows that consumption expenditure has been the key driver for the economy during the current financial year.

The Economic Survey expresses concern that the share of industry has come down significantly. The decline reflects the muted markets sentiments leading to slowdown in private investment demand and industrial growth, poor earnings growth of the corporate sector, and risk aversion on the part of the banks. 

Economic Survey 2015-16 states that the asset quality of SCBs has come under stress during the recent times. Gross NPAs of SCBs as a proportion of gross advances increased to 5.1% from 4.6% between March and September 2015. Mining, Iron and Steel, textiles, infrastructure and aviation sectors contributed 53% of the total stressed advances. (With PIB Inputs)