Falling Bank Loans Signal 11% Contraction in India 2Q GDP
Declining credit flows in India indicate an 11% contraction in gross domestic product for the July-September quarter.
(Bloomberg) -- Declining credit flows in India indicate an 11% contraction in gross domestic product for the July-September quarter, according to Bank of America Merrill Lynch, steeper than the 7.5% consensus estimate in a Bloomberg survey of economists.
Central bank data show bank loans grew 5.5% in the two weeks to Aug. 14 from a year earlier, slower than the 7% pace before Prime Minister Narendra Modi imposed a strict lockdown to contain the coronavirus. In August 2019, credit was increasing by nearly 12%.
Bank of America’s analysts also note that loans to small and medium businesses are slowing despite a credit guarantee program from the government. They point to high real lending rates -- adjusted for wholesale prices -- as a constraint to recovery.
Data earlier this week showed Asia’s third-largest economy contracted by a historic 23.9% in April-June from a year earlier. Although there are early signs that activity began picking up this quarter as the lockdown eased, the recovery is uncertain as India is quickly becoming the global epicenter for virus infections.
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