Fitch Ratings on Tuesday said Indian banks face a tough operating environment in the near term as stressed loans and write-offs increase due to the economic fallout of the COVID-19 pandemic.
“Indian banks face a tough operating environment in the near term, as stressed loans and write-offs increase as a result of the economic fallout from the coronavirus pandemic, but a swift economic recovery will be critical to limiting loan losses in what is likely to be a protracted period of weakness in the asset-quality cycle,” Fitch Ratings said.
Banks have been permitted by the Reserve Bank of India to undertake a one-time restructuring exercise of loans affected by the pandemic, which will provide relief in terms of bad loan recognition and provisioning, Fitch said.
“However, the exercise could leave the sector saddled with a high bad loan burden over the next few years if restructured loans do not perform according to agreed milestones,” it added. Fitch said the central bank’s data showed that Indian banks wrote off almost $85 billion over FY14-FY19.
