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Scandals, bad debts at banks could disrupt India’s economic outlook

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Mumbai :Scandals, bad debts, ATM cash shortages–India’s banking system has experienced them all in recent months and the bad run is starting to have repercussions for both the broader economy and Prime Minister Narendra Modi.

India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans, and some regional banks have been ensnared in fraud scandals. With a national election slated for April or May, Goldman Sachs Group economists have trimmed their growth projections for the year ending March to 7.6% from 8% amid concerns that the banking system’s woes are more widespread than previously thought.

On top of that, ATMs in some parts of the country have been reported to be running dry in recent days. There’s an unusually high demand for cash, according to the Finance Ministry. The rupee shortage is being blamed on everything from farm spending to looming elections and hoarding by some families.

 

Yet some roots of the issue may lie in Modi’s 2016 decision to take high-denominated cash out of circulation in a bid to curtail India’s vast and unreported black economy and crack down on illicit financial transactions.

The move initially caused economic mayhem and the disruptive shocks to cash in circulation continue to linger.

While government officials have said the banking system is healthy and that there’s adequate cash for the excess demand, the crunch has only further tarnished the public image of banks.

“The problems in India’s banking system are self-inflicted mostly because of lack of due diligence,” said N.R.

Bhanumurthy, a Delhi-based economist at the National Institute of Public Finance & Policy. “Of course this will affect growth.”

The broad uncertainty hovering over the financial sector comes just as the economy was showing early signs of recovering from a disruptive tax system overhaul and the 2016 cash ban. Now there are growing worries that lending, and with it economic activity, will stall.

Bhanumurthy for now forecasts GDP growth of 6.5% for the current fiscal year ending March 2019, although he fears the numbers could go even lower. His estimate is already below last year’s 6.6 percent and as well as the most pessimistic forecast of 6.9% in a Bloomberg survey.

Indian banks — the heart of its economy — have had their image tarnished by a string of scandals that have come to light over the past couple months as companies, saddled with excess capacity and subdued demand, struggle with the aftermath of a borrowing spree following the global financial crisis.

Many companies have been unable to pay down their debt as the economy has slowed, especially in the power, steel and telecommunications sectors. At least some of these loans might have been given with insufficient scrutiny, exposing financial institutions to risk.

That coupled with tougher regulatory oversight by the central bank and federal investigators, has skeletons tumbling out of closets.

Last week, Kolkata-based UCO Bank was in the spotlight after India’s federal investigative agency registered a case against its former chairman for cheating the state-run lender. The bank had reported losses for nine straight quarters as it made provisions for soured debt. Calls to him went answered.

Axis Bank CEO, Shikha Sharma, this month said she will quit earlier than expected from the mid-sized lender after failing to rein in about 250 billion rupees in gross non-performing loans.

In one of the most high profile cases of fraud, a billionaire jeweler was accused of masterminding a $2 billion scam at Punjab National Bank, one of the country’s largest public sector banks by using fake guarantees. Punjab National Bank shares have lost almost 40 percent over the past year.

For more on India’s other banks read these stories: ICICI Bank’s Love for Its CEO Is Testing the Limits: Gadfly Investigators Summon Top Bank Chiefs as India Widens Fraud Probe

Business sentiment has soured in the wake of the alleged banking frauds, said Abhishek Gupta, Bloomberg’s India Economist, who cut growth forecasts this week. This is likely to have a negative impact on credit growth, with the banking system burdened by bad loans.

Gupta has lowered his growth forecasts to 7.2% from 7.5% for the year ending March 2019. That took it below the Bloomberg consensus of 7.4%, a pace probably insufficient for Modi to create enough jobs in time for the elections.


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India one of world’s fastest growing large economies:IMF

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Washington: India has been one of the fastest growing large economies in the world, the International Monetary Fund (IMF) has said, asserting that the country has carried out several key reforms in the last five years, but more needs to be done.
Responding to a question on India’s economic development in the last five years at a fortnightly news conference here, IMF communications director Gerry Rice Thursday said, “India has of course been one of the world’s fastest growing large economies of late, with growth averaging about seven per cent over the past five years.”
“Important reforms have been implemented and we feel more reforms are needed to sustain this high growth, including to harness the demographic dividend opportunity, which India has,” he said.
Details about the Indian economy would be revealed in the upcoming World Economic Outlook (WEO) survey report to be released by the IMF ahead of the annual spring meeting with the World Bank next month, he said.
This report would be the first under Indian American economist Gita Gopinath, who is now IMF’s chief economist.
“The WEO will go into more details. But amongst the policy priorities, we would include accelerate the cleanup of banks and corporate balance sheets, continue fiscal consolidation, both at centre and state levels, and broadly maintain the reform momentum in terms of structural reforms in factor markets, labour, land reforms and further enhancing the business climate to achieve faster and more inclusive growth,” Rice said.

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Fitch cuts India GDP growth forecast for FY20 to 6.8 pc

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New Delhi: Fitch Ratings on Friday cut India’s economic growth forecast for the next financial year starting April 1, to 6.8 per cent from its previous estimate of 7 per cent, on weaker than expected momentum in the economy.
“While we have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8 per cent, followed by 7.1 per cent in FY21,” Fitch said in its Global Economic Outlook. Fitch Ratings cut India’s FY19 GDP growth forecast to 7.2 per cent from 7.8 per cent on December 6.
The rating agency has also cut growth forecasts for FY20 and FY21 to 7 per cent from 7.3 per cent and 7.1 per cent from 7.3 per cent, respectively. According to Fitch, the RBI has adopted a more dovish monetary policy stance and cut interest rates by 0.25 percentage at its February 2019 meeting, a move supported by steadily decelerating headline inflation.
“We have changed our rate outlook and we now expect another 25 bp cut in 2019, amid protracted below target inflation and easier global monetary conditions than previously envisaged,” it said. “On the fiscal side, the budget for FY20 plans to increase cash transfers for farmers,” it added. Fitch said, it’s benign oil price outlook and expectations of accelerating food prices in the coming months should support rural households’ income and consumption.

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India’s total wireless subscribers grew to 1.18 bn in January 2019: TRAI

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New Delhi: India’s total wireless subscribers grew by 0.51 percent to 1,181.97 million (1.18 bn) in January 2019, as per a report by telecom regularor TRAI.
Total wireless subscribers (GSM, CDMA & LTE) increased from 1,176.00 million at the end of December 2018 to 1,181.97 million at the end of January 2019, thereby registering a monthly growth rate of 0.51 percent, the TRAI report said.
As on January 31, 2019, the private access service providers held 89.95 percent market share of the wireless subscribers whereas BSNL and MTNL, the two PSU access service providers, had a market share of only 10.05%, the regulator said in its report.
The Wireless subscription in urban areas increased from 647.52 million at the end of December 2018 to 654.20 million at the end of January 2019, however wireless subscriptions in rural areas declined from 528.48 million to 527.77 million during the month.
The monthly growth rates of urban wireless subscription was1.03 percent and rural wireless subscription was 0.13%, the report said
The Wireless Tele-density in India increased from 89.78 at the end of December 2018 to 90.15 at the end of January 2019.
The Urban Wireless Tele-density increased from 155.48 at the end of December 2018 to 156.85 at the end of January 2019, however Rural Wireless Tele-density declined from 59.15 to 59.04 during the same period.
The share of urban and rural wireless subscribers in total number of wireless subscribers was 55.35 percent and 44.65 percent respectively at the end of January 2019.

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