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Bad loans to rise at Indian banks as easy liquidity may tighten - Fitch

Mon 8th March, 2021 8:52am
BENGALURU, March 8 (Reuters) - Bad loans and credit costs
are expected to rise at Indian banks as easy money policies to
shore up a pandemic-battered economy may start to tighten, Fitch
Ratings said on Monday.
    The coronavirus lockdowns last year slammed an already
struggling financial sector, but recent quarterly reports have
shown an improvement in profits and asset quality.
    Noting that the recent improvement masked underlying
pandemic stress, Fitch said banks would increasingly feel the
pinch from the continued impact on small businesses and rising
    "Fitch believes that the disproportionate shock to India's
informal economy and small businesses, coupled with high
unemployment and declining private consumption, have yet to
fully manifest on bank balance sheets," the rating agency said
in a note
    India's economy returned to growth in the third quarter, but
many sectors continue to operate below capacity and some
indicators point to stress in retail customers, Fitch said.
    Fitch added it sees high risk of a "protracted
deterioration" in asset quality with more pressure on loans to
retail and stressed small and medium-sized enterprises.
    The Reserve Bank of India had in January warned
 that banks may see bad loans double to 14.8% under a severe
stress scenario.
    State-owned banks, with their limited capital buffers, will
be more vulnerable to the impact of the pandemic than
private-sector peers, and the government's plan to pump $5.5
billion into these lenders over fiscal 2021 and 2022 is unlikely
to be enough, Fitch said.
    The ratings agency estimates state-owned lenders need $15-58
billion in capital, under various stress scenarios.
    Higher contingency reserves at private banks, which offer
them better earnings and capital resilience, make them better
poised for growth in 2021, Fitch said.

 (Reporting by Chris Thomas in Bengaluru; Editing by Saumyadeb
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