Chennai: Indian bankers expect demand for credit to improve in 3-6 months after demonetisation of Rs 500 and 1,000 notes slowed it down, finds a banking survey.According to the survey, the bankers also want a regulator to govern the financial technology (fintech) industry.According to the Ficci-IBA Bi-Annual Survey of Bankers (July – December 2016), demand for credit slowed down as consumption was affected in the short-term due to cash shortage after demonetisation of Rs 500 and 1,000 notes on November 8, 2016.

Many respondents to the survey expect credit demand to improve after 3-6 months, as economic activities are expected to pick up by that time, Federation of Indian Chambers of Commerce and Industry (Ficci) said in a statement.Demonetisation coupled with restrictions on cash withdrawals caused the CASA (current account, savings account) deposits with banks to swell, giving a boost to liquidity while lowering their cost of funds.

As a result, the banks also lowered their marginal cost of funds based lending rates (MCLR) across all tenures.In fact, many banks have lowered the MCLR in December 2016, despite no change in the repo rate by the Reserve Bank of India in its last monetary policy review.Welcoming the emphasis on digitalisation of banking services as it would reduce their transaction costs, the respondents to the survey called for incentivising the adoption of digital payment modes.

According to the survey, bankers agreed on the need to monitor and regulate fintech industry to ensure customer protection, Ficci said in a statement.”They (banks) believe that an appropriate body needs to be appointed as the regulator for fintech industry. Additionally, there need to be guidelines and regulations set for due diligence, data protection, cyber security and client protection,” Ficci said.

“Other suggestions include mandatory Information Systems Audit for fintech companies, and a statutory requirement to keep a certain amount of cash with the regulator for resolving claims, if any,” the statement said.As to their expectations from the upcoming Union Budget, the bankers expect the government to boost consumption demand and investment by reducing corporate and personal income tax and additional deductions.

The bankers also want additional capital infusion by the government in public sector banks, measures to fast track bad loan resolution, creation of a central corporate repository and interest payment on cash reserve ratio (CRR) balance.The survey also reveals that iron and steel, infrastructure and textiles continue to account for a large concentration of bad loans.For infrastructure sector, while a majority of respondents has reported a rise in non-performing assets (NPA) during the July-December 2016 period, 29 per cent of respondents have in fact reported a decline in NPA levels during this period.Going forward, the key sectors identified by the participating banks which could see a greater demand for long-term credit include infrastructure, automobiles, and food processing. Other sectors expected to see higher demand for long-term credit include real estate, pharmaceuticals and textiles.