Investment bank Goldman Sachs downgraded its forecasts for India’s economy on Tuesday in the wake of a more than $2 billion fraud at Punjab National Bank, warning it could spark tighter regulation of the banking sector that would constrain credit growth.
In a note to clients, Goldman Sachs lowered its real gross domestic product (GDP) forecast on India for the year to March 2019 to 7.6 percent from 8 percent earlier.
Last month’s disclosure of the fraud by PNB, India’s second-largest state-run lender has sent bank shares tumbling.
The case, along with a flurry of smaller loan frauds since reported by other banks, has sparked new concerns that credit growth is unlikely to pick up quickly in an economy where state-run lenders that account for two-thirds of banking assets are already saddled with a mountain of bad debt.
The Goldman warning is a blow for the government, which had hoped that a $32 billion, two-year, bank recapitalisation programme it unveiled last year would help Indian banks to begin to restart lending, spurring elusive job growth in the economy.
State-run lenders account for the bulk of the close to $150 billion of soured debt in India. They have already seen the amounts they must set aside to cover bad debts grow due to new central bank rules, and are staring at further loan losses as they pursue a host of defaulters through the bankruptcy court. Read More