Financial sector fragilities taming growth

FC Investigative Bureau

Business, Economy

For the first half of 2019-20 fiscal, GDP growth slowed to a pace of 4.8 per cent compared to the 7.5 per cent a year back.

"Financial sector fragilities continue to weigh on India's economic growth momentum, with the high level of non-performing loans on the balance sheets of the public sector banks constraining their new lending," IHS said.

New Delhi: Though the RBI has pegged GDP growth at 5 per cent for the current fiscal, the actual figure could be slightly below that mark in FY20, as the impact of stimulus measures will take time to filter through to the economy. Despite several measures taken by the government, high bad loan levels of public sector banks will drag down India's growth momentum, according to an IHS Markit release on Sunday.

"Financial sector fragilities continue to weigh on India's economic growth momentum, with the high level of non-performing loans on the balance sheets of the public sector banks constraining their new lending," IHS said.

For the first half of 2019-20 fiscal, GDP growth slowed to a pace of 4.8 per cent compared to the 7.5 per cent a year back. Furthermore, there are also risks from potential contagion effects from troubled non-bank financial companies (NBFCs) to the balance sheets of some commercial banks, which could further weigh on the overall pace of credit expansion, it said.

"Following the weak GDP outturn for the September quarter, Indian real GDP growth in FY 2019-20 is expected to be slightly below 5 per cent, as it is anticipated that the impact of stimulus measures will take time to filter through to the real economy," it said.

"Confronted with the sharp slowdown in economic growth momentum, the government will face increasing pressure to roll out additional fiscal measures to bolster manufacturing output and kick-start an upturn in the investment cycle. Such measures could include accelerated government spending on infrastructure projects such as roads, railways, and ports, as well as urban infrastructure such as affordable housing and hospitals,"

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