Improvement in macroeconomic conditions likely to alleviate stress for banking sector: S&P

25 Feb 2021 Evaluate

S&P Global Ratings has said that an improvement in macroeconomic conditions is likely to alleviate stress for India's banking sector. It said the Indian government's strong efforts to shield banks from the COVID-19 pandemic have largely been successful, but a hit from the pandemic is inevitable. It also stated that while the Indian economy is on a mend, the permanent GDP loss stemming from the brunt of the coronavirus is huge at 10 percent. It estimates the banking system's weak loans are at 12 percent of gross loans.

S&P further said that India's economic risk trend is stable and credit risk remains very high for Indian banks. It noted that these banks hold elevated levels of stressed corporate assets and, despite new foreclosure laws, progress on their resolution has been slow. It also said the pandemic-induced downcycle has delayed the improvement in asset quality for Indian banks. It added that Small and midsize enterprises (SME) have been hit hardest, followed by retail loans, especially unsecured loans.

It further stated that steps by the government and the Reserve Bank of India, including an emergency credit guarantee scheme for SMEs, are likely to lessen the stress. It expects earnings of Indian banks to gradually recover from the weak base of past few years.

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