Inflation, investment & large CDRs spell trouble: Crisil

Crisil managing director and CEO Roopa Kudva explains to CNBC-TV18 the considerable fall in India's growth potential indicated by the fourth quarter data which posted a nine-month low of 5.3%.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: Most non-government economists and brokerages have downgraded the FY13 GDP targets. What's your own estimate? Is 7% looking achievable?
A: Crisil recently revised its growth forecast for financial year 2012-2013 to 6.5%, which is the same level of data released for the previous year. So there isn't a pick up in growth and it is expected to be flat. The chief issues relevant at this point in time, from an economy perspective, are the high levels of fiscal deficit. If growth is at 6.5%, the forecast is that the fiscal deficit will rise to a level of 5.8%.
The other area of economic concern is inflation. While inflation is expected to come down from the 8.8% levels of last year, current year forecasts say that it will be 7%, which is still fairly high and way above the comfort of the policymakers.
The level of investments is another problem area. A few quarters ago, the gross fixed capital formation came down to zero. What I think is constraining investment is the current policy environment with ambiguity on several key aspects particularly about infrastructure- be it acquisition of land, access to sources of fuel, environment linkages and so on.
Last on my list of concerns is the level and the volatility in the rupee. But as far as GDP growth is concerned, Crisil has brought down the forecast from 7% projected earlier to 6.5%. Q: Last year we saw a record number of companies going the CDR way. Given the slowdown in the economy and global uncertainty, do you anticipate the CDR situation worsening?
A: Crisil published a study which forecasted that over 2012 and 2013, the total loans going in for restructuring would be Rs 2 lakh crore. What is very different qualitatively about the loans going in for restructuring, this time as compared to what happened in 2008, is that the average sizes of the loans are much higher.
This time it is the turn of the larger accounts. In fact 65% of the loans going in for restructuring have a ticket size of Rs 1,000 crore and above. Q: Has asset quality made banks more vulnerable this fiscal?
A: Crisil has  forecast that loans worth Rs 2 lakh crore will restructured which is 3,7% of all loans to restructured . We predict NPA levels to also rise 3.2%, in addition to the 3.7% of restructured loans.
So, clearly asset quality is under pressure. However I think from an overall balance-sheet perspective, the level of risk is not high because the banking system is well capitalised.
However, there is no doubt that margins are under pressure and growth is slowing down. With growth in credit and deposits, and asset quality costs rising, the pressure on banks' bottomlines are set to increase further Q: What are the other sectors that look vulnerable?
A: I wouldn't say the banking industry is vulnerable. Clearly the pressure is higher compared to last year, but the banks are well capitalised. The sectors under stress airlines, textiles, the power sector particularly where the distribution companies are concerned or the new generation companies are concerned and real estate, particularly commercial real estate.