Goldman lowers India GDP forecast

Investment bank Goldman Sachs downgraded its forecasts for India’s economy in the wake of a more than $2 billion fraud at Punjab National Bank, warning it could spark tighter regulation of the banking sector that would constrain credit growth.

In a note to clients, Goldman Sachs lowered its real gross domestic product forecast on India for the year to March 2019 to 7.6 per cent from 8 per cent earlier.

Last month’s disclosure of the fraud by PNB, India’s second-largest state-run lender has sent bank shares tumbling.

The case has sparked new concerns that credit growth is unlikely to pick up quickly in an economy where state-run lenders that account for two-thirds of banking assets are already saddled with a mountain of bad debt.

The Goldman warning is a blow for the government, which had hoped that a $32 billion, two-year, bank recapitalisation programme it unveiled last year would help banks to begin to restart lending, spurring elusive job growth in the economy.

State-run lenders account for the bulk of the close to $150 billion of soured debt. They have already seen the amounts they must set aside to cover bad debts grow due to new central bank rules.

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