India State-Run Banks Most Vulnerable To Rising Risks From Covid Spike - Fitch
Friday,
09-Apr-2021
12:00 PM (IST)
India’s surging coronavirus caseloads poses increased risks for banks, with state-run lenders likely to bear a larger brunt due to their prevailing weak asset quality, Fitch Ratings said today. “The second wave could dent the sluggish recovery in consumer and corporate confidence, and further supress banks' prospects for new business,” senior director - financial institutions at Fitch Ratings said in a note. “There are also asset quality concerns since banks' financial results are yet to fully factor in the first wave's impact and the stringent 2020 lockdown due to the forbearances in place.” India is witnessing a second wave of coronavirus cases, with the country reporting 131,968 fresh cases today, its highest ever. The rising caseload has prompted several states to impose more restrictions, that has threatened to delay economic recovery and raised prospects of ballooning bad loans for lenders. Fitch said that micro, small and medium enterprises and retail loans will be most at risk, if renewed restrictions impinge further on individual incomes and savings. The extension of the MSME refinancing scheme until Jun. 30 will eventually add to the banking sector’s exposure to stressed MSMEs going forward, it said. State-run banks are the more vulnerable given their prevailing weak asset quality and greater participation in relief measures do not commensurate with their limited loss-absorption buffers, the rating agency noted. Private banks, on the other hand, have a much better earnings capacity, to withstand stress, it said. Downside risk to Indian banks' viability ratings - particularly those in the 'bb' category - would rise if operating environment risks increase. A speedy economic recovery is critical for the sector to rebound, even though it expects a challenging landscape for lenders in 2021. Fitch forecasts India's real gross domestic product growth at 12.8% for this financial year that started Apr. 1. This incorporates expectations of a slowdown in April-June due to the flare-up in new coronavirus cases.
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