Impact of Covid-19 pandemic will challenge Indian banks in FY22: Fitch

Improving the financial performance of Indian commercial banks will face a challenge from the impact of the Covid-19 pandemic once asset quality risks emerge in the next fiscal year (FY22), according to Fitch Ratings.

Indian banks reported lower impaired loans and improved profitability for the nine-month period ended December 2020 (FY21) due to various forbearance measures and the continuation of significant radiation.

The disproportionate shock to India’s informal economy and small businesses, coupled with high unemployment and declining private consumption, is not yet fully manifested in bank balance sheets, the rating agency said in a statement.

Indian banks, especially state banks, remained more risk averse than in previous years, which was reflected in their weak credit growth.

Fitch said he expects a moderately worse sector outlook for Indian banks for 2021-2022, based on moderate expectations for new business and revenue generation and deterioration in asset quality.

The Indian government’s less than adequate recapitalization plans for its banks further underline the risk, which will likely keep risk aversion high among banks. This would occur against a backdrop of continued uncertainty about the quality of assets and an uneven economic recovery.

Indian banks’ bad loan ratio fell 130 basis points to 7.2% at 9MFY21, but it has yet to account for the majority of pandemic stress, which is unrecognized due to a judicial intervention or abstention.

As the judicial intervention measures (forbearance) unfold, Fitch expects Indian banks to reverse the improvements in asset quality and profitability. Public sector banks are more vulnerable to higher stress than private banks, which have better profitability and higher contingent reserves and capitalization, he added.

Dear reader,

Business Standard has always strived to provide up-to-date information and commentary on developments that matter to you and have broader political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these difficult times resulting from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative views and cutting-edge commentary on relevant current issues.
However, we have a demand.

As we fight the economic impact of the pandemic, we need your support even more so that we can continue to provide you with more quality content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscriptions to our online content can only help us achieve the goals of providing you with even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital editor

About Jonathan Bell

Check Also

Pressley and Warren push Biden to give up $ 50,000 in student debt

BOSTON (AP) – President Joe Biden is expected to help those fighting the student debt …

Leave a Reply

Your email address will not be published.