The credit ratings agency, ICRA in its latest report has said that the high quantum of non-performing asset (NPA) will restrict the overall bank credit growth to a moderate 7-8% in fiscal 2018-19, despite recapitalisation of public sector banks (PSBs) and private sector players upping their game with a 25 percent credit growth. It also said that India Inc will borrow more from cheaper sources abroad.
ICRA also expects the external commercial borrowings (ECBs) to go up to $27-32 billion in FY19, on the back of recent relaxation in ECB norms by the Reserve Bank of India (RBI) and the high rate of borrowing domestically. It pointed out that the actual ECB inflows would be driven by the all-in-cost of ECBs remaining competitive in relation to domestic sources. It noted that improved ECB inflows would help to finance the larger current account deficit, which may support the rupee in the short-term.
According to the report, that the state-run banks' problems will stem from the high provisioning needed for bad assets and the need to meet mandated capital requirements. It also said that with the relaxation in ECB norms offering an alternate avenue for corporates' borrowings, the credit demand pressure on the domestic banking system and the bond market would ease, which would consequently reduce the upward pressure on domestic interest rates.