Clean Up Bank Balance Sheets To Revive Growth, Says HSBC’s Pranjul Bhandari

The government must clean up banks’ balance sheets to revive India’s GDP growth from a more than six-year-low. That’s according to Pranjul Bhandari, chief India economist at HSBC.

“You have to resolve the stress in bank balance sheets if you want the monetary policy transmission to happen, and that at this point is our best bet for a growth recovery,” Bhandari told BloombergQuint in an interview.

“The best way to get this done is to have the cases (pending) under the Insolvency and Bankruptcy Code resolved more quickly,” she said, adding that this will enable banks to get rid of bad assets and resume higher levels of lending.

India’s monetary policy committee cut the repo rate five times this year to revive the slowing economy. This was complemented by corporate tax cuts, which helped more than half of Nifty 50 companies save nearly Rs 4,323 crore in the six months ended Sept. 30.

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Still, Bhandari said, there are many more reasons for sluggish growth. “I do think that growth has bottomed out at this point. I don’t think it will slide below that in the next quarter, but I don’t think the improvement will be very sharp,” she said, adding that half of her predicted growth rate of 5.9 percent for the next year comes from a statistically low base and as such doesn’t indicate a “real” increase.

Banks still grappling with balance sheets weighed down by poor asset quality are reluctant to lend despite the monetary easing, Bhandari said.

“If you can help clean up some of the stress in the balance sheet of banks, then at least some of the stuff clogging the system will open up and the transmission will happen, credit flow will happen,” she said.

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