‘GDP contraction raising flags over lenders’ asset quality’

Asset quality risks for banks are rising amid the country’s economic contraction, even though risks from corporate loans have decreased from the previous credit cycle, Moody’s Investors Service said in a new report.

‘Not immune’

“Corporates will not be immune [to risks] from the ongoing economic contraction caused by the coronavirus outbreak,” Srikanth Vadlamani, vice-president and senior credit officer at Moody’s said. “Near-term stress at corporates is already visible in the very weak performance in the quarter ending June 2020,” he added.

“However, risks from corporate loans have decreased from 2012-19, when a large amount of corporate loans were impaired. With exposures to most corporates with weak financial health already recognised as NPLs, currently performing loans are better placed to withstand stress,” he said.

“Lending in the past few years has been concentrated among stronger [firms] amid an overall slowdown in capital expenditure, while banks have also become more conservative”. “Job losses, declines in income and disruptions to business will strain the finances of retail and SME borrowers significantly,” the report said.