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The GDP growth is seen rising to a respectable 7.5 per cent next fiscal from 6.5 per cent expected this fiscal, propelled by domestic consumption, policy push, and synchronised global growth, according to Crisil.
The projected GDP growth for FY19 is, however, is still below the 13-year average, it added.
The credit rating agency observed that the last two years have been sub-par years, interjected by demonetisation and roll out of the Goods and Services Tax (GST).
Crisil said the key engines supporting the upturn in FY19 are largely domestic and policy-driven, though a synchronous upturn in global growth will, undoubtedly, provide some tailwind.
The agency elaborated that, “While the upturn is a given, aided partly by the low-base effect, we identify four thrust vectors – the four Rs – that will critically determine the extent of pick-up and its sustainability.
“Resolution of stressed assets in banking; Rural rejuvenation; Relentless implementation of reforms; and Rising global growth.”
Resolving NPAs
The agency opined that the asset quality issues plaguing the public sector banks have reached such gargantuan proportions — with gross non-performing assets (GNPAs) touching 10.5 per cent — that no meaningful and sustainable economic recovery is plausible without, at least, beginning of a resolution process.
“The transparent and time-bound process driven by National Company Law Tribunal (NCLT) offers hope. While haircuts are likely to be deep – at 60 per cent plus in our view in many large cases – the scale and time-frame of recovery will mark a watershed for Indian banking.
“We are particularly positive on the steel sector, helped by buoyant global prices and recovering domestic demand,” said Crisil.
With improving economy and turning credit cycle, the agency assessed that fresh slippages will moderate and NPAs will likely peak at 11 per cent by March 2019. Continued government support though capital infusion, including growth capital, will, however, be critical for the lending cycle to start, a requisite for growth step-up.
The agency cautioned that an unintended consequence of resolution will be possible slowdown or deferment in private sector capital expenditure. This will be driven by two factors – improvement in the utilisation of stressed capacities that move into stronger hands, and reduced financial and management bandwidth for acquirers, especially the strategic ones, for new large projects.
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