Bad loans to rise in Indian banks as easy liquidity may tighten – Fitch

BENGALURU, March 8 (Reuters) – 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.

“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 press release. Remark.

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 had in January warned that banks could see bad credit loans double to 14.8% under a severe stress scenario.

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.

(Reporting by Chris Thomas in Bangalore; Editing by Saumyadeb Chakrabarty)

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