dbsSentiment in the Indian private sector remains low, even as individual consumption is starting to pick up, Singapore-based DBS bank said.

“Industrial lending slowed to 0.5% year on year in Apr-May in contrast to the personal loans that jumped 19.4%,” the bank said in a note to its clients.

DBS said a combination of factors has delayed recovery in the sector.

Firstly, capacity utilization is down five points since 2014 and near lows at 70% this year, it pointed out.

“Business survey results saw they don’t have any plans to add capacity over the next six months. Poor demand conditions, high cost of borrowing, delayed clearances and cost escalation were named as the main constraints.

“Secondly, exports remain under pressure limiting visibility of orders and thereby lowering the need to deploy or build capacities,” DBS said.

It said that exports could start improving due to the ‘base effect’ of poor numbers in the comparison periods kicking in, but export receipts are still about 16% below 2014 levels — when they started declining.

Poor private sector performance have also translated to asset quality concerns for banks, the bank added.

“Gross non-performing assets jumped to 7.6% of total advances by Mar 16 and are likely to surpass 8% by Mar 17. This has hurt credit availability,” it added.

India’s growth this year is likely to be primarily driven by private consumption and to a lesser extent government spending, while private sector activity is yet to recover, the bank added.

Higher public investments (helped by off-budget funding) and FDI inflows are expected to crowd-in private sector interests next year, it added.

Even after Much celebrated Modi Government’s Make In India project, stalled projects in manufacturing, construction and real estate projects under implementation remained high at 12.3% in 2Q16, bulk of which accrued to private sector projects, according to the Centre for Monitoring Indian Economy.

Investment spending fell 1.9% year on year in 1Q 2016, from 1.2% in late-2015.

“Not surprisingly, new investment announcements slipped in the quarter, with private sector commitments plunging 60% quarter on quarter. Corporate earnings are poised to gain some ground this quarter, but manufacturers’ pricing power remains under pressure,” said DBS.

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