Analysts say gross bad loan ratio has been building up over the last three years and demonetisation has nothing to do with banks not lending.
In a surgical strike just after Diwali last year, Prime Minister Narendra Modi rendered 86 percent of currency in circulation worthless and ensured that cash dominated every conversation in the country.
A year after demonetisation, banks are flush with funds worth Rs 15.28 lakh crore. So why didn’t the money come back into the system? Not because of demonetisation, but because NPAs are very high in India.
According to data available with Reserve Bank of India, the gross bad loan ratio (GBLR) will go up to 10.2 percent in 2018 as compared to 9.6 percent in March 2017. Analysts say this has been building up over the last three years and demonetisation has nothing to do with banks not lending.
Ranen Banerjee, Executive Director-Partner at PWC, says: “Banks have not been lending because NPAs are very high.”
He says the economy will slow down temporarily and going forward, when the informal economy’s data gets included in the growth numbers, the economy will grow around 5.5 percent.
“The private sector borrowed to add capacity and has not been able to repay debts because of lack of global demand,” Ranen says.
Most of this slow growth was because of fall in commodity prices and political headwinds in the US, North Korea and Europe.
CM Grover, Co-founder of IBS Fintech, says: “The only good thing is that demonetisation and GST are bringing a large portion of the economy into the digital economy. Next year, investment in infrastructure will boost the economy.”
The total NEFT/RTGS/ECS transfers in the country increased from $14 trillion in September 2016 to $21 trillion in September 2017. This certainly means that digital transactions will leave a trail for tax authorities and that more money has come into the formal economy.
Lalit Bhise, co-founder of Mobisy Technologies, a company that works with retailers and wholesalers, says: “One can expect growth to increase from next quarter.”
However, we must expect a flat growth this quarter.
Analysts say things can change in the fourth quarter of the financial year because there will be an uptick in global demand and corporate spending can go up. Banks can free up their cash resources as agri-lending will go up because of good monsoons. The budget too is expected to be a populist one because it will be running up to the national elections in 2019.
Nonetheless, the economy will continue to grow slowly because banks are not lending.
Here is what RBI says in its 2017 financial stability report about Indian banks:
So, if these are the reasons for the economy’s slowdown, why blame just demonetisation? The slowing is a combination of several things, from global cyclical problems to GST.
During the first anniversary of demonetisation, we can expect transparency in government disbursements that follow to spruce up the economy. That’s the hope everyone has – industry experts, businesses, startups and the common man.