NEW DELHI: Goldman Sachs has downgraded its forecasts for India’s economy on Tuesday over Punjab National Bank fraud worth Rs 12,700 crore, as it fears it would constrain credit growth for businesses due to tighter norms.
“Markets and investors are questioning whether the problem is more systemic,” Goldman analysts wrote in a note referring to the PNB fraud, adding that markets feared the fraud would likely offset some of the positive effects of the bank recapitalisation and hit overall credit, investment and GDP growth.
In its note to clients, Goldman Sachs lowered its real GDP forecast on India till March 2019 to 7.6 per cent from 8 per cent earlier. For the current fiscal ending March 31, it forecasts the Indian economy to grow 6.6%.
It said the average haircuts on impaired loans Indian banks would need to take could be 60-65 per cent over the next two years, higher than the 50 per cent it had assumed earlier, meaning overall provisions would rise.
Goldman Sachs said it feared a regulatory crackdown after the huge PNB fraud, and the mountain of soured debt, could increase Indian banks’ provisioning burden and so slow credit growth.
Last month the PNB reported one of the biggest banking frauds in the recent years. 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.