Banks need more capital to deal with non-performing assets issues, said Japanese financial services major, Nomura, after releasing its 2018 mid-year India market and economic outlook.
Speaking to CNBC-TV18, Sonal Varma, Chief India Economist, Nomura, said financing of balance of payments is impacting rupee and US Federal Reserve rate hike has an adverse impact on domestic interest rate environment.
She said global macro growth impulse is going to be neutral to negative with rising threats and India needs to ensure that country has a stronger domestic demand in the face of adverse external conditions.
Neeraj Gambhir, Head of Fixed Income, Nomura, said 40% of government bonds are being held by public sector banks that are short on capital.
He said banks need more capital to deal with non-performing asset issues but a large part is also being used to deal with rising bond yields.
However, this has impacted demand for bond yields leading to a vicious cycle and more needs to be done on policy front to break this vicious cycle, Gambhir said.