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India's economic situation like the 1991 crisis: Barclays

August 21, 2013 09:53 IST

India's economic situation like the 1991 crisis: Barclays

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Stating that the current economic scenario is similar to 1991-92 crisis, foreign brokerage Barclays said credit growth of banks will slow down to 10-11 percent levels, just like it did during the crisis in early 90s.

"The current macro context and consequently the monetary policy challenges are similar to those in FY1992," it said in a note.

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Photographs: Reuters

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India's economic situation like the 1991 crisis: Barclays

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Barclays drew a slew of parallels between the ongoing economic scenario and the one during the dark period of 1991-92, like a sharp GDP slowdown, strained external account and sticky inflation.

It can be noted that growth has fallen to a decade low of 5 percent in FY13, the current account deficit is at a record high of 4.8 percent, while the headline inflation also surged to 5.79 percent due to the rupee depreciation, after showing ebbing for three months.

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Photographs: Reuters

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India's economic situation like the 1991 crisis: Barclays

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Top economic policymakers, including Prime Minister Manmohan Singh, who ushered in the reforms in 1991 as a result of the crisis, have been repeatedly asserting that the scenario at present is not the same as 1991.

It added that in 1991-92, capital spending and credit growth were weak, and hence, going to the bond markets was an unattractive option for banks.

"If the FY92 scenario is repeated, credit growth could drop to 10-11 percent," it said, conceding that this is contrary to the current focus on credit growth getting constrained because of weak deposit growth.

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Photographs: Reuters

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Barclays said given their inflexible cost structures, public sector banks would get impacted because of this while others like Yes Bank and Indusind Bank, which are witnessing a string of growth in operating expenses because of network investments will also be hit.

"A prolonged slowdown in credit growth would put pressure on the cost to income ratios of banks that have an inflexible cost base," it said. 


Photographs: Reuters

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