COVID-19 may set back Indian banks’ recovery by years: S&P

The COVID-19 pandemic might set again the restoration of India’s banking sector by years, which might hit credit score flows and, in the end, the economic system, S&P International Scores stated on Tuesday.

The US-based score company expects non-performing loans in Indian banks will hit a recent excessive, elevating credit score prices, and placing stress on rankings.

“In our base case, we anticipate the non-performing loans to shoot as much as 13-14% of whole loans within the fiscal yr ending March 31, 2021, in contrast with an estimated 8.5% within the earlier fiscal yr,” stated S&P International Scores credit score analyst Deepali Seth-Chhabria.

Furthermore, the decision of those bad-debt conditions will doubtless unfold slowly, which suggests banks might also be saddled with an enormous inventory of dangerous loans subsequent yr.

“We assume solely a couple of 100 foundation level enchancment in non-performing loans in fiscal 2022 (yr ending March 31, 2022),” she added.

S&P International Scores credit score analyst Geeta Chugh stated the impact on finance firms shall be extra pronounced than on banks.

“Some finance firms lend to weaker clients and have excessive reliance on wholesale funding. These firms have been already going through a belief deficit for the reason that 2018 default of Infrastructure Leasing & Monetary Providers. Finance firms additionally face accentuated liquidity dangers as a consequence of excessive proportion of debtors choosing mortgage moratorium,” she stated.

After years of decay, asset high quality within the Indian banking system had improved over the previous 18 months, helped by increased write-offs, slower accretion of dangerous loans, and determination of some large circumstances beneath the brand new chapter regulation.

“Nonetheless, Indian banks have been nonetheless working via a formidable overhang of non-performing property when the COVID disaster struck. This largely derailed that rehabilitation course of,” S&P added.

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