Coronavirus impact to bring more worries for Indian banks, says Fitch; revises down operating environment score for critical sector by notch

The coronavirus-related worries are likely to aggravate difficulties for Indian banks, ratings agency Fitch said on Thursday, revising down the operating environment score for the critical sector by a notch

Press Trust of India March 26, 2020 16:28:37 IST
Coronavirus impact to bring more worries for Indian banks, says Fitch; revises down operating environment score for critical sector by notch

Mumbai: The coronavirus -related worries are likely to aggravate difficulties for Indian banks, ratings agency Fitch said on Thursday, revising down the operating environment score for the critical sector by a notch.

The score has been revised to “BB” from “BB+” earlier, the agency said, pointing out that COVID-19 outbreak ups the worries for the sector, which is already reeling under weak business and consumer confidence.

 <span class=Coronavirus impact to bring more worries for Indian banks says Fitch revises down operating environment score for critical sector by notch" width="380" height="285" class="size-full wp-image-7023271" />

Representational image. Reuters.

The outlook on the score is “negative”, given the uncertainty surrounding the severity and duration of the pandemic, and the associated effects on India's banks of restrictions on economic activity, it said.

The operating environment score was last revised down in 2019 due to the weakness in business and consumer confidence, it said.

The lockdown will impact industrial production and domestic demand, it said, adding this will exacerbate the economic slowdown of the past few quarters that was partly caused by weaker credit availability from non-bank lenders from September 2018.

It, however, said the closed nature will help restrict the impact on economic growth in India as compared with Asian peers.

The agency said the Indian banking system is under-capitalised and continues to saddled with bad loans, despite some successes.

Click here to follow LIVE updates on coronavirus outbreak

“We believe recent developments will add to these issues and slow the resolution process. It will further test the underwriting standards of those banks that expanded the fastest in recent years, including the private-sector banks, as the sharp disruption in economic activity will lead to worsening asset quality,” it explained.

From a banking perspective, travel, which forms 2.2 percent of all loans and small business lending that accounts for 5.4 percent will be the hardest hit, along with sectors such as auto that depend on inputs from China.

It also warned that the retail segment, especially the unsecured ones, may face headwinds as unemployment rises.

It said Indian banks' Issuer Default Ratings will face downward rating pressure in the near term as they are based on support from the India sovereign and are at their Support Ratings Floors.

But banks like Axis Bank and ICICI Bank, whose viability ratings are above the mid-point score for the system, are susceptible to downward pressure on viability ratings, it said.

It acknowledged that both the private sector lenders have better income and capital buffers.

Updated Date:

also read

Explainer: Will COVID-19 'third wave' impact children more? How to safeguard kids without vaccine?
India

Explainer: Will COVID-19 'third wave' impact children more? How to safeguard kids without vaccine?

For protecting children, doctors emphasised on following COVID-appropriate behaviour and insisted that adults must get themselves vaccinated

New COVID-19 vaccine procurement policy will rejuvenate India's battle against pandemic; here's why
Blogs

New COVID-19 vaccine procurement policy will rejuvenate India's battle against pandemic; here's why

While the original plan of 30 crore fully vaccinated individuals by July may extend by a few weeks, the year-end target can be more ambitious

Copa America's fate rests in hands of Brazil Supreme Court amid surge in country's COVID-19 cases
Sports

Copa America's fate rests in hands of Brazil Supreme Court amid surge in country's COVID-19 cases

Already delayed by 12 months because of the pandemic, the Copa America nearly unravelled when original co-hosts Colombia and Argentina fell through at the last minute — the former because of violent anti-government protests, the latter because of a surge of COVID-19.