New Delhi: The Indian economy and the financial sector are returning to a “potential growth path” after adjusting to intense dislocation in the global economic environment, financial services major Goldman Sachs said.
“We believe the Indian economy and the financial sector are returning back to a potential growth path, post a period of adjustment to the intense dislocation in the global economic environment,” Goldman Sachs said in a report.
Goldman expects its net income growth for the financial sector to rebound to 32% in 2010, from 1% in 2009.
The firm further said it is turning constructive on the Indian financial sector due to improving outlook for the macroeconomic environment, positive impact of a decisive election outcome on potential policy action and government agenda as well as on business confidence.
“Decisive election results likely to impact business confidence positively,” it said.
Besides, other reasons for the constructive view is the change of outlook from negative to positive as well as upside potential to its growth expectations.
It is likely that the loan growth would be over 20% by 2011, it said.
The financial services firm further said it estimates return on equity to rise to 17% in 2011 from 13% this year.
Goldman Sachs had also raised the stock ratings of some of the country’s leading banks, which include the country’s largest lender State Bank of India, Punjab National Bank, Indian Overseas Bank and Bank of Baroda.
It said that key mitigating factors for banks include capital raising by the non-financial sector, thereby reducing their debt-burden further and improving macro-economic environment.
Besides, “regulatory forbearance” are allowing banks to restructure loans as opposed to classifying them as NPLs (non-performing loans), it said.
It, however, said there are certain risk factors too, which include, increase in interest rates and setbacks in the credit quality environment.
Besides, deterioration in asset quality could be yet another risk for banks.