A persistent slowdown in GDP growth could result in a rise in non-performing loans of both public- and private-sector lenders, warned Standard and Poor's (S&P).
The global credit rating agency said the Government could react to this by nudging public sector banks to respond in a less commercially-oriented manner. The Government, as the dominant shareholder, could play a role in getting public-sector banks to restructure loans to large public-sector enterprises (such as Air India) that run into serious financial difficulties.
In addition, a potential fall in the GDP growth rate could tempt the Government to get banks to increase directed lending and reduce interest rates to aid borrowers in key sectors.