Mumbai: India’s easing of stringent lockdown rules after 40 days will do little to revive credit growth in the economy, according to research from Axis Bank Ltd.
Bank loans and deposits are concentrated in areas designated red zones, where the movement of people and economic activity will remain restricted, Saugata Bhattacharya, the lender’s chief economist in Mumbai, wrote in a note. The share of bank credit in districts marked red was 83% of the total as of September 30, and 74% for deposits, he said.
Of the 723 districts in India, 319 are designated green zones, 284 are orange and 130 are red, depending on the intensity of the virus outbreak. Almost all major cities in India are under the red zone and despite accounting for a smaller geographical area, they hold disproportionately higher levels of the population and economic activity.
“An elongated lockdown is likely to have a more pronounced economic effect, given the concentration of credit in these zones,” said Bhattacharya.
India’s $1.7 trillion banking system plays an out-sized role in the country, with the sector grappling with a large amount of stressed assets — among the highest in the world — in the past few years. That’s weighed on credit growth and contributed to a slowdown in the $2.7 trillion economy, Asia’s third-largest.
What Bloomberg’s Economists Say
This lockdown 3.0, plus a staggered opening up of the economy in the weeks ahead, means a heavy toll on the economic output. We continue to expect the GDP to contract by 24.8% year on year in the current quarter.
— Abhishek Gupta, India economist
The economy could be heading for its first full-year contraction in more than four decades, as the world’s biggest lockdown cripples business activity and puts a lid on consumption. Standard Chartered Plc said Monday GDP will probably shrink 2% in the fiscal year to March 2021, compared with an earlier projection of growth of 0.7%. – Bloomberg
Also read: Raghuram Rajan bats for quick reopening of economy, says India can’t support poor for long