Bad loans to rise in Indian banks as easy liquidity could tighten: Fitch
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Bad debts and credit costs are expected to rise at Indian banks as easy money policies to support a pandemic economy may start to tighten, Fitch Ratings said on Monday.
Coronavirus shutdowns last year slammed an already struggling financial sector, but recent quarterly reports showed improving earnings and asset quality.
Noting that the recent improvement was masking the underlying pandemic stress, Fitch said banks would increasingly feel the effects of the continued impact on small businesses and rising unemployment.
Read: How reliable are bad debt numbers from banks?
“Fitch believes that the disproportionate shock to India’s informal economy and small businesses, coupled with high unemployment and declining private consumption, is not yet fully reflected in bank balance sheets,” the agency said. rating in a note.
India’s economy returned to growth in the third quarter, but many sectors continue to perform below capacity and some indicators point to strains among retail customers, Fitch said.
Fitch added that he saw a high risk of a “prolonged downgrade” in asset quality with increased pressure on lending to distressed individuals and small and medium businesses.
The Reserve Bank of India warned in January that banks could see bad loans double to 14.8% under a severe stress scenario.
Read: Assessment of the real state of postings in banks: RBI Governor Shaktikanta Das
Fitch mentioned.
The rating agency estimates that public lenders need $ 15 billion to $ 58 billion in capital, under various stress scenarios.
Higher contingency reserves in private banks, which provide them with better earnings and better capital resilience, make them better prepared for growth in 2021, Fitch said.
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