Fitch Ratings has stated that Indian banks challenges that have been posted by the so-called coronavirus pandemic have increased after the second wave hit the country in the first quarter of fiscal FY22.
In its 2021 report card for Indian banks, Fitch believes that rapid vaccination could support a sustainable revival in business and consumer confidence; however, without it, economic recovery would remain vulnerable to further waves and lockdowns.
Fitch has revised down India's real GDP for FY22 by 280bp to 10%, underlining our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation in FY22.
Further, Fitch stated that regulatory relief measures have postponed underlying asset-quality issues for now, but banks’ medium-term performance will be dented without a meaningful economic recovery. Stress Not Fully Accounted: The impaired loans ratio of 7.5% in FY21 was moderately better than our expectations.
Also, Fitch said that the ratio was supported by declining fresh bad loans as well as high levels of write-offs. The rating agency further added that continued relief measures aimed at Covid-19 affected segments (such as micro, small and medium enterprises (MSME), retail and contact services) played a crucial role in deferring recognition of problems with asset quality.
That said, Fitch expects impaired loans to peak after FY23 "since stress is likely to manifest from this pool over a fairly protracted timeframe."
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