India’s growth to recover to 7 pct in next few quarters: Report

Nomura sees credit, deposit growth converging post demonetisation

India News

After a year of weak bank credit growth and spike in deposits following demonetisation, credit and deposit growth have begun to converge, said a report. On November 8 last year, the government had scrapped Rs 500 and Rs 1,000 banknotes as part of its efforts to fight black money, corruption and fake currencies. The decision resulted in a sharp surge in deposits and a slump in credit demand as it weakened economic activity, Japanese brokerage Nomura said in a report today. A year later, deposit growth has normalised at 9.8 per cent as of mid-October, while credit growth, led by services and personal loans, has risen to 7.7 per cent– still below the pre-noteban trend when it was around 9 per cent but up from a trough of 4.1 per cent in early March, the report said. “We expect this trend of convergence between credit and deposit growth to continue,” the brokerage said. It said a cyclical recovery and higher commodity prices should boost working capital needs, while the availability of growth capital after the recently announced bank recapitalisation plan should also enable public sector lenders to extend more loans. This should push the credit-deposit ratio higher towards 75 per cent from 72.6 per cent in mid-October and tighten liquidity incrementally, the report said.
Praising the efforts of Prime Minister Narendra Modi to carry forward reforms, including unification of indirect taxes, the World Bank CEO said the GST reform creates an incredible opportunity for India to grow through unified internal market. There is visible impact of reforms on foreign investment, she said, adding that foreign direct investment (FDI) has doubled to USD 60 billion from USD 36 billion in 2013-14. Besides, she said, investment in infrastructure building, investment in its people and strengthening of cooperative and competitive federalism are foundation for more progress in the future. “We know that there is a very strong condition that extreme poverty would be history in India. The target date that was set 2026, I understand that the Prime Minister intends to shorten to 2022. Given the track record so far, I have no doubt that would be possible. “And I have no doubt that when India hits another century, the century of independence in 2047, most people in India would be the part of global middle class. India will be a high middle income country,” she said.