Indian Banks Continue To Suffer Amidst A Struggling Economy

When Prime Minister Narendra Modi and his BJP government were voted into power, the Indian economy was thriving and millions of Indians expected PM Modi to take India to the next level.

The dynamic PM introduced major change in India by rolling out a demonetization drive in November 2016 and followed it up with the introduction of a new Goods and Services Tax (GST).

While Modi supporters continue to believe that these strong measures will transform the economy and do go for the country, current results show that the moves have not only backfired but has also plunged the Indian economy into a crisis.

India recorded its lowest GDP in three years during the first quarter of this year with a growth of just 5.7 percent. Indian banks have also suffered as a result as bad debts have now reached record highs after hitting $145.56 billion.

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The International Monetary Fund has also downgraded India’s growth for 2018 reducing it from an estimated 7.2 percent to 6.7 percent and cited the demonetization drive and the GST roll-out for the downgrade.

In a statement, the IMF said

In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the midyear introduction of the country-wide goods and services tax

Fitch Ratings and Moody's Investor Service have also highlighted the concerns that Indian banks were facing and their growing debt. Fitch Ratings stated that banks in India will require around $65 billion of extra capital by March 2019 to be able to meet Basel III global banking rules.

Analysts from Moody's have pointed out that the government currently has around $3 billion remaining in its budget for bank recapitalization while the top 11 state lenders will need more than $15 billion.

Prime Minister Modi has had to fend of critics during the last month who questioned the decisions being made by PM Modi and his government. The PM who is known for his charismatic speeches has continued to put up a brave front and make promises to create millions of jobs and revive the struggling economy before the 2019 elections.

However time is running out for the Modi government as after three years in power, as one of the main reasons they were voted into power was because Modi promised to create millions of jobs, reduce unemployment and boost the economy – three promises that he has failed to keep till date based on current data.

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