India Banking Crisis Failing the Economy

India’s banking crisis is at the heart of the country’s economic woes, Morgan Stanley’s chief global strategist Ruchir Sharma said at the News18 Rising India Summit on Saturday.

“Every country needs a public sector, but no country is as unbalanced as India. Public sector banks hold two-thirds of the assets while private banks are involved in more transactions. This is choking the Indian banking sector. This needs to be addressed as it lies in the heart of India’s problems. The situation now is ‘death by a thousand cuts’. This is malign due to neglect,” said Sharma, News18.com reported.

He admitted that privatization of banks was not a practical solution and said the government needs to remove the upper hand that state-run banks have in terms of political preferences. “There is regulatory overkill in the Indian banking sector because private banks will keep lending, but central banks are still holding assets.”  He deduced that the direct result of this is the adversity faced by medium and small enterprises. “We are heading for a credit freeze,” Sharma said.

Talking about India losing out significantly on domestic wealth, Sharma pointed out that, “Since 2014, 23,000 millionaires have left this country. Last year, 7,000 millionaires left India. The year before, it was 4,000. A major side effect of this is that you need your own people to invest in your country. This affects domestic markets.”

However, he also reassured that it is not all gloomy for domestic markets. “For me India has been forever rising. The highest number of quality companies in the world are in India. Over the last five years, at least 70 companies in India with a turnover of over a billion dollars have doubled their value despite crony capitalism,” said Sharma.

Global markets have been on the surge since the last decade with companies charting profits more than ever. Sharma felt that India has somehow not been able to capitalize on the boom. However, India still stands a chance to make money through its equity markets.

“The biggest cliche in the world is that easy money has already been made. I think there is always money to be made. I see enough opportunity in Indian markets. There are good quality companies,” said Sharma.