25-quarter low GDP growth to hit bank earnings, increase asset quality pain

Besides recent corporate slippages, slowdown would impact unsecured retail loans, farm and micro finance loans, commercial real estate and NBFCs and poorly-rated corporates with risk of downgrades

A 25-quarter-low gross domestic product (GDP) growth of 5 per cent for the June 2019 quarter (Q1), indicating further slowdown in economic activities, has impacted the earnings outlook for Indian banks. The slowdown is likely to lead to greater asset quality pain than analysts had estimated earlier, resulting in higher bad loan provisioning.

In fact, after the balance sheet clean-up in the March 2018 and June 2019 quarters, banks that lent heavily to the corporate sector were expected to see a sharp improvement in asset quality and, therefore, in credit cost and earnings. However, the improvement is now expected to