Financial stress in many industries will ease: study

Auto OEM is the only sector which is expected to move to low-stress level

for file: VELLORE, TAMILNADU: 03/06/2016: Indian Rupees of 500 and 10 coins . Photo: C. Venkatachalapathy

The financial stress levels for banks will subside to an extent across sectors due to increased consumer spending following normal monsoon and a healthy pace of infrastructure investment, according to a study.The study, covering banking assets in 20 focus sectors, was conducted by SMERA, a joint initiative of Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private Limited (D&B) and leading Indian public and private sector banks.

The study revealed that of the 20 sectors reviewed, only textiles and hospitality would remain in the high stress zone against six now. The other four high-risk sectors now are gems and jewellery, infrastructure, steel and sugar.

Auto OEM

Auto OEM is the only sector which is expected to move from moderate stress level now to low stress level by next fiscal.

Presently over 50 per cent of the 20 sectors covered are in moderate stress level and this proportion will increase to 75 per cent. “Telecom and pharma will see marginal increase in stress level score but they will remain in low stress zone,” according to the report.

Agri and allied products, which is in the moderate zone and sugar, which is in the high stress zone, are likely to see maximum improvement in the stress level score due to good monsoon.

Increased infrastructure spends and projected budgetary allocations are expected to bring good tidings for power generation and infrastructure sector in the year ahead.

SMERA Chief Executive Officer Sankar Chakraborti said the 20 sectors were chosen as they had the maximum influence over India’s growth. Funding to these sectors amounted to over 40 per cent of total credit outstanding of about Rs.73 lakh crore.He said the global economic crisis and the resultant drop in demand had led to subdued returns from huge investments made by industries in augmenting capacity. This has resulted in companies struggling to repay debt. As on March 2016, gross NPA levels crossed 11 per cent of advances.

With banks being more cautious in lending, growth in credit off-take is at a decadal low, he said.