Goldman expects lower credit costs for Indian lenders to boost GDP

Bloomberg/Brent Lewin

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Analysts at Goldman Sachs Group said that India’s measures to improve the recovery of bad loans and a recapitalisation plan equivalent to 1.1 per cent of gross domestic product (GDP) will lower costs for lenders.

Monday 15, April 2019

(Bloomberg) --A decline in credit costs of Indian banks is likely to boost the capacity of lenders to extend loans and, in turn, boost growth in the world’s fastest-growing major economy.

 “We estimate that credit costs, how much banks set aside each year to deal with bad loans, could fall from a peak of 230 basis points of banking system assets, or around INR 3.3 trillion ($48 billion), in 2018 to 120 basis points, or INR 1.9 trillion in 2020,” Goldman Analysts said.

“This decline in credit costs would boost bank profitability, reduce headwinds to bank capital growth and enhance the capacity of the banking system to extend credit,” added Goldman Analysts.

The analysts estimate the decline in costs will raise loan growth by 140 basis points, which in turn should bolster investment growth by 200 basis points. All in all, that should translate into a 60 basis points boost to economic growth in the financial year ending March 2020.

India has the highest stressed-asset ratio among the world’s major economies.

While bank loans have been growing at a steady pace of 14 per cent year-on-year, investments in Asia’s third-largest economy have lagged.

TAGS : bad loans, GDP, Goldman Sachs

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