In a recent research report titled “India: No ‘banking’ on growth”, Goldman Sachs has some interesting analysis on Indian banks.
The borrowing spree of the previous few years is increasingly causing strains on banks’ balance sheets.
A sharp increase in stressed assets is a big overhang for the banking system and Indian banks’ Gross NPLs are the highest in the region. However, provisions for stressed assets are still low, and the lowest in the region.
The infrastructure sector contributes about 30% of total stressed assets, even though its share in total loans is only about 15%. Also, their research suggests that a 1% increase in real GDP growth will increase credit growth by 1.7%. So there could be significant positive spillover effects if clogged investment projects come on stream.
Basically, once GDP growth starts picking up, it will unclog the banking system. And the key to kick starting growth is to see the already-sanctioned projects through by removing bottlenecks.