Fitch warns of big hit to asset quality of lenders | Mint
Active Stocks
Thu Feb 29 2024 12:59:28
  1. Kotak Mahindra Bank share price
  2. 1,685.45 0.11%
  1. Tata Steel share price
  2. 141.10 0.25%
  1. Power Grid Corporation Of India share price
  2. 279.85 0.11%
  1. ITC share price
  2. 408.80 0.05%
  1. Titan Company share price
  2. 3,617.45 0.69%
Business News/ Industry / Banking/  Fitch warns of big hit to asset quality of lenders
BackBack

Fitch warns of big hit to asset quality of lenders

RBI’s latest measures, including an extension of the 90-day moratorium on recognition of impaired loans and allowing banks to fund interest on working capital loans, will put a heavy burden particularly on state-owned banks to bail out affected sectors, says Fitch

In the near term, banks are expected to prioritize asset quality stress management and capital preservation.Premium
In the near term, banks are expected to prioritize asset quality stress management and capital preservation.

Increased pressure to lend will erode the asset quality of Indian banks by 200-600 basis points for at least the next two years, Fitch Ratings said.

The latest measures announced by the Reserve Bank of India (RBI), including an extension of the 90-day moratorium on recognition of impaired loans and allowing banks to fund interest on working capital loans, will put a heavy burden particularly on state-owned banks to bail out affected sectors, the ratings firm said in a note on Thursday.

“The lockdown to contain the spread of the virus has taken a severe toll on businesses, supply chains and individual incomes. The impact for many micro and small, and medium business sectors is structural, a meaningful revival is unlikely even when the lockdown ends," it said.

In the near term, banks are expected to prioritize asset quality stress management and capital preservation. Public sector banks may not be able to fully adjust their risk profiles, in light of the state’s influence and management instability, seen by Fitch as key reasons for poor execution.

“ICICI Bank and Axis Bank’s execution has also been less than satisfactory. However, there is greater management accountability because of the presence of strong institutional shareholders and more intense regulatory scrutiny compared with state-run banks, which are ring-fenced from certain regulatory powers because of the state’s involvement," it said.

Bad loans as a percentage of total loans will trend up because of both higher fresh slippages and lower loan growth, according to Fitch.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
Catch all the Industry News, Banking News and Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
More Less
Published: 29 May 2020, 12:43 AM IST
Next Story footLogo
Recommended For You
Banking Stocks
₹1,074.65-0.57%
₹1,408.15-0.37%
₹1,046.150.89%
₹120.70.87%
₹742.350.31%
Switch to the Mint app for fast and personalized news - Get App