Fitch revises outlook on banks’ operating environment mid-point score to negative

Fitch Ratings has revised its operating environment mid-point score for Indian banks to ‘bb’ from ‘bb+’, as increasing challenges from the COVID-19 pandemic are expected to worsen the tough operating environment.

“The outlook on the operating environment is ‘negative’ due to the uncertainty surrounding the severity and duration of the pandemic, and the associated effects on India’s banks of restrictions on economic activity,” the rating agency said.

Fitch said the 21-day lockdown will affect industrial production and domestic demand, which will exacerbate the economic slowdown of the past few quarters.

Fitch has revised India GDP growth to 5.1% in the financial year ending March 2021 (FY21), from a pre-pandemic forecast of 5.6%, following a growth of 5.0% in FY20.

The rating agency said recent steps by the Reserve Bank of India so far focussed on shoring up liquidity in the banking system and ensuring currency stability, but there will be additional measures from the authorities to mitigate the impact of the outbreak.

“The banking system remains under-capitalised and saddled with bad loans despite some progress in resolving these issues. We believe [the] 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,” the rating agency added.

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Printable version | Apr 7, 2020 4:04:39 PM |

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