Second Covid19 wave elevates risks for Indian banks: Fitch Ratings

Leading Rating agency Fitch on Friday said the second wave of Covid-19 infections poses increased risks for India's fragile economic recovery and its banks.

Fitch expects a moderately worse environment for the Indian banking sector in 2021, but headwinds would intensify if rising infections and follow-up measures to contain the virus further affect business and economic activity. India's active COVID-19 infections have been increasing at a rapid pace with new infections exceeding 1 lakh a day in early April 2021, against 9,300 in mid-February.

"The government's more accommodative fiscal stance may also mitigate some short-term growth pressures. However, inoculating India's large population in a fast and effective way will be important to avoid repeated disruptions," Fitch said, adding India's second wave of COVID-19 infections poses increased risks for fragile economic recovery and its banks.

 Fitch forecasts India's GDP growth at 12.8 percent for the current financial year ending March 2022 and this incorporates expectations of a slowdown in the April-June quarter due to the flare-up in new coronavirus cases. But the rising pace of infections poses renewed risks to the forecast. "Over 80 percent of the new infections are in six prominent states, which combined account for roughly 45 percent of total banking sector loans. Any further disruption in economic activity in these states would pose a setback for fragile business sentiment, even though a stringent pan-India lockdown like the one in 2020 is unlikely," Fitch Ratings said.

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