India’s banking sector slump #IndiaFinance

Good morning. India’s stock markets started yet another week in deep red, as quarterly results of big companies provided little cheer. Saturday’s budget announcements will determine where the markets go next.

In today’s newsletter, we take a look at the performance of the banking sector and what that says about the economy. Plus, India is alarmed by China’s plans to build the world’s largest dam in Tibet.

Bank balance

India’s banking sector is having a difficult year, with rising bad debts and a weak outlook for credit growth. The quarterly earnings of major private banks, which were announced this month, show a larger number of customers defaulting on the interest payment of their loans. These defaults are highest in the unsecured loans category — credit cards and personal loans.

Amitabh Chaudhry, chief executive of Axis Bank, said it was a “tough environment” and expected both deposit and credit growth to be subdued until 2026. HDFC Bank, the country’s largest private lender by market capitalisation, reported a 17 per cent rise in provisions (money set aside to cover potential bad loans), a sign it is preparing for higher defaults in the future. ICICI Bank, which announced its results on Friday, offered better news overall but it, too, saw its provisions rise.

Together with the results of consumer goods companies, which are witnessing slowing demand especially in urban areas, these numbers illustrate the real troubles in the economy. Rising inflation has forced the Reserve Bank of India to keep interest rates high, leading to significant slowdowns in consumption and credit growth. The government this month revised down its GDP growth forecast for the year starting in April to 6.4 per cent.

In a surprise move yesterday, the central bank announced three measures to inject liquidity into the banking system. These included open market purchase auctions of government securities, a variable rate repo auction (where the central bank allows banks to borrow at a variable interest rate, which is determined through an auction), and a foreign exchange swap where the RBI buys US dollars from banks and strikes a deal to sell them at a later date.

This sets the scene for Saturday, when finance minister Nirmala Sitharaman is scheduled to announce her budget proposals in parliament. My hope is that she will produce some more magic to break the deadlock of high interest rates and weaker GDP growth that has lately plagued the economy.

Have questions about the budget? Send them to us and we’ll answer them next week. Hit reply or email [email protected].

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Dam it!

India is alarmed about China’s plans to build the world’s biggest dam in Tibet. The 60-gigawatt project is three times the size of China’s Three Gorges, which is currently the world’s largest hydropower facility, and could cost $137bn. The proposed dam is on the Yarlung Tsangpo river, the Tibetan name for the Brahmaputra, and lies close to Arunachal Pradesh. India’s worries are related to security as well the ecological repercussions of this construction. The dam will give China the power to control water supply to Arunachal Pradesh, including the ability to flood parts of the state. It will also probably change the flow of the river and have an impact on the availability of water downstream even during peacetime.

India’s concerns also underline the uneasy relationship between the two large neighbours. After four years of tensions along the Line of Actual Control, in October 2024 the two countries reached a deal to de-escalate the military stand-off. Subsequently, Prime Minister Narendra Modi met China’s President Xi Jinping on the sidelines of the Brics summit in Russia for their first bilateral meeting in five years. Both countries have since withdrawn tens of thousands of troops from the region.

But the dam sets up the prospect of intensifying competition over water resources between the two nations. India has announced plans to build what would be the subcontinent’s largest dam, the Siang Upper Multipurpose Project, in Arunachal Pradesh. (Caught between the two is the smaller Himalayan kingdom of Bhutan, which too has built several medium-sized dams on the same river.) That there will be a significant ecological impact from this is a given, even if China is promoting it as an environmentally-friendly sustainable source of electricity. India is right to be concerned about the strategic edge the dam gives China, but it has limited options to counter the threat.

Go figure

Global investors made the best use of booming secondary markets and offloaded a record amount of private equity stakes in 2024

My mantra

“I find productivity is high on days that start productively. The early morning meeting routine that has been part of my work life for the past 25 years now prepares me well for the day. I also find setting daily and weekly goals helps me avoid distractions. I believe healthy work-life balance and physical wellbeing are critical to maintain focus and high energy levels.”

— Ashish Gupta, chief investment officer, Axis Mutual Fund

Each week, we invite a top Indian business leader to tell us their mantra for work and life. Want to know what your boss is thinking? Nominate them by replying to [email protected].

Quick question

Do you think the Indian stock market will bounce back next week after the budget? Take part in our poll here.

Buzzer round

On Friday we asked: Which company has secured a deal to restore the Amazon rainforest and offset its AI emissions?

The answer is . . . Microsoft, which acquired carbon credits worth about $200mn, for energy usage surges due to generative artificial intelligence.

Thank you for reading. India Business Briefing is edited today by Mure Dickie. Please send feedback, suggestions (and gossip) to [email protected].