Moderate pressures on asset quality of Indian banks may re-emerge as forbearance starts to unwind from 2023, Fitch Ratings said on Friday.
However, the better near-term performance should create headroom for banks to absorb stress while maintaining their current financial metrics, it said.
Indian banks have benefited from regulatory-sanctioned deferred recognition of pandemic-driven stress, which has led to a decline in impaired loan ratios and an earnings recovery that is being driven by lower loan impairment charges, the agency said in a statement. India’s economic recovery and regulatory forbearance support domestic banks in the near term. There has been improvement in the financial performance.
They are reflected in the stable outlook on the operating environment, which was revised from negative in November 2021.