Economic slowdown, low GDP growth likely to hurt banks' earnings: Analysts

After the balance sheet clean-up in March 2018 and June 2019 quarters, banking sector, mainly corporate lenders, were expected to see sharp improvement in asset quality and credit cost and earnings

A 25-quarter-low gross domestic product growth print of 5 per cent for the April-June 2019 quarter (first quarter or Q1), indicating further slowdown in economic activities, has deteriorated the earnings outlook for Indian banks. The slowdown is likely to lead to higher asset quality pain, compared to analysts’ earlier estimates, thereby higher bad loan provisioning.

In fact, after the balance sheet clean-up in March 2018 and June 2019 quarters, the banking sector, mainly corporate lenders, were expected to see sharp improvement in asset quality and thus, credit cost and earnings. However, now, the improvement is expected to be lower.

Morgan