'India's economy to improve, cost of funds may rise'

India's economy is set to witness improvement in the overall conditions, owing to growth of external financial linkages, ample funds and pickup in the domestic economic activity, according to a survey.

However, 31 leading banks and financial institutions participating in the survey for the April-June quarter also anticipate the cost of funds to rise due to tightening of liquidity in the near future, thereby dampening corporate lending which is already grappling with issues like high NPAs.

The survey was carried out to map the expectations of banks and financial institutions.

The government recently gave wide-ranging legislative powers to the Reserve Bank to issue directions to lenders to initiate insolvency proceedings for recovering bad loans, as non-performing assets (NPAs) of public sector banks zoomed to unacceptably high levels of over Rs 6 lakh crore.

High NPAs limit the capacity of the banking sector to lend to corporates.