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Wednesday, July 28, 2021

S&P: ‘Indian banks face systemic risk’

As the economic recovery remains highly vulnerable to setbacks due to Covid, particularly if fresh outbreaks trigger new lockdowns, S&P said the banking sector’s weak loans will likely remain elevated at 11-12 per cent of gross loans in the next 12 to 18 months.

By: ENS Economic Bureau | Mumbai |
July 1, 2021 3:01:20 am
S&P said it expects the second wave to impair the performance of financial institutions in the first half of fiscal 2022, with much resting on the effectiveness of government steps to address this problem.

Indian banks face a systemic risk as the second Covid-19 pandemic wave will impair the performance of financial institutions in the April-September period of fiscal 201-22, S&P Global Ratings said.

As the economic recovery remains highly vulnerable to setbacks due to Covid, particularly if fresh outbreaks trigger new lockdowns, S&P said the banking sector’s weak loans will likely remain elevated at 11-12 per cent of gross loans in the next 12 to 18 months. “The second wave has front-ended weakness in asset quality,” said S&P Global Ratings Credit Analyst Deepali Seth Chhabria.

“Financial institutions face a strained first half amid weak collections and poor disbursements,” S&P said. Indian banks face systemic risk as the country sorts through the aftermath of the Covid second wave. Lenders struggled with a high level of weak loans well before the pandemic struck and clearly, conditions have deteriorated, S&P said in a statement. It said the real GDP growth is expected to be lower at 9.5 per cent in the current fiscal ending March 2022 as against the earlier estimate of 11 per cent.

S&P said it expects the second wave to impair the performance of financial institutions in the first half of fiscal 2022, with much resting on the effectiveness of government steps to address this problem.

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