On Monday, S&P Global Ratings stated that in the wake of the second wave of COVID-19, and high proportion of low loans systemic risk to Indian banks is likely to remain high. “On the year ended 31 March 2022, we anticipate credit losses that will decrease to 2.2% and 1.8%, after remaining high in tax revenues for 2016-21 by an average of 2.8%,” S&P said. In the wake of the second wave of COVID-19 infections, and a large proportion of weak loans, S&P Global Ratings believe that systematic risks for the Indian banks will remain high. Even as India’s economic rebound and steps to mitigate the effects of the economic crisis by the central bank, and the government will continue to limit stress on its balance sheets. S&P indicated that the weakness in the balance sheet in smaller companies is likely to contribute to incremental NPLs (Non-performing loans) for Indian banks. A substantial loss in revenues and profits from COVID 19 containment measures has occurred in services such as airlines, hotels and malls, multiplexes, restaurants and retail.
Meanwhile, retail loans could also contribute to higher NPLs, especially unsecured personal lending and credit card loans. “The government has supported liquidity for these cash-strapped entities under the emergency credit guarantee scheme for new loans to small and medium-sized enterprises (SMEs). However, it is unlikely that the solvency of SMEs will be fully restored, ” S&P added. The government extended the loan guarantee scheme in March 2021 to June 2021 and expanded its scope. “This would reduce stress on the financial statements of the banks. For the Indian economy, we look forward to good growth prospects over the next few years. Over the last few months, the US-based agency said the economy has recovered strongly,”stated S&P.
In fiscal 2022, S&P forecasts growth of 11%, followed by an increase of 6.1%-6.3% in the years ahead. The COVID-19 control remains a major economic risk. In recent weeks, new infections spike and a second pandemic wave is happening in the country. Certain targeted lockdowns have already been implemented, which will probably require more. Depending on their length and extent, the impact of wider economic lockdowns could be significant. “We believe that the speed of vaccination deployment in India will be crucial in alleviating the risk of future epidemic waves. At approximately 104 million, India has one of the highest doses given worldwide. But given the country’s large population, the rate of vaccination among the leading countries in this respect is only around seven doses per 100 individuals, significantly lower than per person, ” said S&P.
