10 May , 2021 By : Kanchan Joshi
NEW DELHI : The latest wave of covid-19 infections could delay India’s economic recovery and add to the risk among financial institutions, ratings agency Fitch Ratings Inc. said in an analysis.
Fitch Ratings said the relief measures announced by the Reserve Bank of India (Ron 5 May will offer some relief to financial institutions in the next 12-24 months, but at the expense of deferring the recognition and resolution of underlying asset-quality problems.
The rating agency, however, said the economic impact of the second wave could be less than the impact seen last year. “We expect the shock to economic activity from the latest wave of the pandemic in India to be less severe than in 2020, even though caseloads and fatalities are much higher. The authorities are implementing lockdowns more narrowly, and companies and individuals have adjusted behaviour in ways that cushion the effects," the rating agency said.
It pointed out that there is a risk that disruption could persist longer and spread further if lockdowns are introduced in more regions, or nationwide. It also said that the risk of rise in coronavirus infections adding to the headwinds facing banks and non-bank lenders due to asset quality pressures is mounting.
The central bank had announced liquidity-boosting and loan-restructuring steps earlier this month. Fitch Ratings said the reintroduction of a restructuring scheme for individuals and small businesses may be significant for lenders.
The scheme, which runs until end-September 2021, may provide borrowers with additional time to resolve repayment stresses and allow financial institutions to spread credit costs over a longer period, the agency said.
“We anticipate that the RBI may introduce additional measures to support the financial sector if indications of economic stress mount, such as credit guarantee schemes or a blanket moratorium like the one that ran from March-August 2020," Fitch Ratings said.
The pandemic has already claimed over 246,000 lives, as per official data. According to Fitch, India’s slow pace of vaccination means that the country could remain vulnerable to further waves of the pandemic even once the current surge subsides.
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