India’s financial sector may be in deep distress, but leading banks are budgeting for 7 per cent GDP growth over the next five years to lift the economy to $4 trillion mark by 2024.
The Modi government, which was voted to power for a second term this May, is aiming to make India a $5 trillion economy by 2024.
While high-frequency data has been repeatedly signalling a slowdown in the economy, leading banks have visualised solid growth ahead on the back of the economy’s rapid shift from unorganised to organised sector and the government’s income support to farm workers.
In their annual reports just released, banking majors SBI, HDFC BankNSE 0.40 % and Kotak Mahindra BankNSE 0.89 % identified crude oil price and a sudden spike in inflation as key risks to their growth projections.
Bandhan Bank, a young lender which got listed last year, said the economy has to sustain at a 7 per cent growth rate to become a $4 trillion economy by 2024.
Global financial services firm DBS Bank recently revised India’s GDP growth projection for financial year 2020 to 6.8 per cent year-on-year (YoY) from 7 per cent projected earlier, citing headwinds for exports amidst challenging trade outlook.
Bandhan BankNSE 1.97 % thinks a combination of favourable demographics, rising urbanisation and shift from unorganised to organised sector are expected to drive growth in private consumption. It expects discretionary spending to increase going forward, driven by India’s large middle class and a growing affluent class.
“The government’s focus on rural India is expected to provide an impetus to rural consumption. The rise in social sector spending, improvement in agricultural productivity, increase in financial inclusion and adoption of digital technology are expected to strengthen rural demand,” Bandhan Bank said. As of last week, the bank commanded a market capitalisation of Rs 65,000 crore.
State Bank of IndiaNSE -1.47 % (SBI), the country’s biggest lender by assets, in its annual report said low inflation, accommodative monetary policy and government’s income support to farmers should aid domestic economic activity in the year ahead.
It said the prolonged US-China trade war and rise in oil prices remain key risks to the growth momentum. The public sector lender believes global economic growth may decelerate to around 3 per cent in 2019.
At their meeting Osaka last month, US President Donald Trump and his Chinese counterpart Xi Jinping agreed to revive trade talks and held off further tit-for-tat tariffs on import of each other’s goods.
HDFC Bank identified a possible slowdown in global economy as a major risk to the Indian economy. “Elevated protectionist tendencies, Brexit-related uncertainty in the UK and monetary policy uncertainty in the developed world, especially in the US, remain key external risks,” it said, adding that any sharp rise in crude oil prices would put domestic growth at risk, as they can adversely impact inflation, fiscal deficit and the current account deficit.
In the first two months of 2019-20, India’s fiscal deficit touched 52 per cent of Budget estimate for the full year. In absolute terms, the fiscal deficit or the gap between expenditure and revenue, stood at Rs 3,66,157 crore, as per the data released by the Controller General of Accounts (CGA).
In the same period last year, the fiscal deficit was 55.3 per cent of the Budget estimate for 2018-19.
NBFC major Bajaj Finance sees FY20 as a challenging year for the economy, as high-frequency indicators such as growth in manufacturing and capital goods, index of industrial production and auto sales are showing softening economic activities amid global slowdown.
Kotak Mahindra Bank saw growth challenges for the economy. However, the bank expects crude oil prices to remain soft ($62 a barrel) and said low global interest rates as reflected in 10-year US Treasure yields at 2.12 per cent would be positive for the Indian economy.
“Despite these challenges, it is an opportune moment to defy gravity of normal economics. We need to take bold steps to reform the financial sector, the real and social infrastructure, remove bottlenecks in different segments and unleash the economy for significant growth in the years to come,” the bank said in its annual report.
“We currently stand at around $2,000 per capita GDP. China’s per capita GDP is now four to five times compared with India’s. India needs to move to double-digit growth,” it said.
Shares of Bajaj Finance, Kotak Mahindra Bank, HDFC Bank, State Bank of Indiaadvanced are up between 17.50 and 114 per cent in last 18 months, while the BSE Sensex gained 17.37 per cent. Bandhan Bank, which got listed in March 2018, was traded 46 per cent higher at Rs 532 against the issue price of Rs 375.