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New Delhi : Fitch Ratings revised downwards India’s GDP growth forecast to 7.2 per cent for current fiscal citing higher financing cost and reduced credit availability.

In its Global Economic Outlook, Fitch projected that for 2019-20 and 2020-21 financial years, India’s GDP growth will be 7 per cent and 7.1 per cent respectively.

Fitch had in June projected India to grow at 7.4 per cent in current fiscal and 7.5 per cent in 2019-20.

“We have lowered our growth forecasts on weaker-than-expected momentum in the data (GDP), higher financing costs and reduced credit availability. We now see GDP growth at 7.2 per cent in the fiscal year ending March 2019 (FY19), followed by 7.0 per cent in FY20 and 7.1 per cent in FY21”, it said.

It said GDP growth softened quite substantially in July-September quarter of current fiscal growing by 7.1 per cent, as against 8.2 per cent in April-June.

Consumption was the weak spot, stepping down from 8.6 per cent to 7.0 per cent, though still growing at a healthy rate. Other components of domestic demand fared well, notably investment, which has been steadily strengthening since 2H17. The external sector was again a significant drag on overall GDP amid steadily accelerating imports, Fitch said.

The global rating agency said India’s fiscal policy should continue to support growth in the run-up to elections in early 2019. It forecast Indian rupee to weaken to 75 to a dollar by end of 2019.

“Stepped-up public investment has helped to stem the downward trend in the investment/GDP ratio, boosted by infrastructure spending. There have also been measures to support rural demand,” it added.

It said the banking sector is still struggling with a high proportion of non- performing assets, while non-banking financial institutions (NBFIs) are facing tighter access to liquidity following the default of IL&FS, one of the 30 biggest NBFIs in India.

NFBIs have accounted for a large share of all lending in recent years and have expanded credit rapidly, it said.

So far, the Reserve Bank of India (RBI) has dismissed calls by the government to provide emergency liquidity and to ease lending restrictions on the maximum volume of lending that state-run banks can provide to NBFIs, Fitch added.

Fitch said it expects inflation to edge up mildly in the coming months, on normalising food prices and higher import prices stemming from the depreciation of the rupee (INR).

The widening of the current account deficit amidst tighter global financing conditions should put downward pressure on the currency, and we forecast the INR to weaken to 75 against the dollar by end-2019, it said.

Mumbai: In a bid to ensure greater transparency, the RBI proposed that floating interest rates on personal, home, auto and micro and small enterprises (MSEs) loans be linked to external benchmarks like repo rate or treasury yields, from April 1 next year.

Currently, banks follow system of internal benchmarks, including Prime Lending Rate (PLR), Benchmark Prime Lending Rate (BPLR), Base rate and Marginal Cost of Funds based Lending Rate (MCLR).

The final guidelines to link the interest rate to external benchmarks will be issued by the end of this month, said the RBI’s ‘Statement on Developmental and Regulatory Policies’.

The proposal to shift to external benchmarking of floating interest rate was suggested by an internal study group set up by the RBI to review the working of the MCLR System.

“…It is proposed that all new floating rate (for) personal or retail loans (housing, auto, etc) and floating rate loans to Micro and Small Enterprises extended by banks from April 1, 2019 shall be benchmarked” to repo rate, or 91/182 Treasury Bill yield or any other benchmark market interest rate produced by the Financial Benchmarks India Pvt Ltd (FBIL).

“The spread over the benchmark rate – to be decided wholly at banks’ discretion at the inception of the loan – should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract,” the RBI said.

It further said that banks are free to offer such external benchmark-linked loans to other types of borrowers as well.

“In order to ensure transparency, standardisation and ease of understanding of loan products by borrowers, a bank must adopt a uniform external benchmark within a loan category; in other words, the adoption of multiple benchmarks by the same bank is not allowed within a loan category,” the RBI said.

In another decision, the RBI issued final guidelines regarding stipulating a mandatory loan component in working capital finance for borrowers.

With a view to promoting greater credit discipline among working capital borrowers, the RBI had earlier proposed to stipulate a minimum level of ‘loan component’ in fund-based working capital finance for larger borrowers.

It had also issued draft guidelines in this regard.

The RBI’s statement also said final guidelines regarding board of management in Primary (Urban) Co-operative Banks (UCBs) will be issued during the month.

An expert committee headed by Y H Malegam had recommended that a Board of Management (BoM) be constituted in every UCB, in addition to the Board of Directors (BoD) with a view to strengthening governance in the UCBs.