Ongoing challenges for India’s banks, says S&P

SINGAPORE -- Indian banks face systemic risk as the country sorts through the aftermath of the COVID second wave. Ratings agency Standard and Poor's says lenders struggled with a high level of weak loans well before the pandemic struck and, clearly, conditions have deteriorated.

S&P Global Ratings expects the second wave to impair the performance of Indian financial intuitions in the first half of fiscal year 2022, with much resting on the effectiveness of the government remedial measures.

"The banking sector's weak loans will likely remain elevated at 11%-12% of gross loans in the  next 12 to 18 months," S&P says. "Credit losses should remain high at 2.2% before recovering to 1.8% in fiscal 2023 (year ending March 31, 2023)."

India's government recently announced support for the microfinance and tourism sectors, and S&P says this should help struggling borrowers. "This support comes on top of recently extended loan guarantees to small and midsize enterprises (SMEs)."

S&P says that while it expects real GDP growth of 9.5% in fiscal 2022, this is off a low base.

www.standardandpoors.com (ATI).