The renewed restrictions had slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation in FY22, the agency said in a report on Wednesday.
“Disruption in several key business centres has slowed the recovery and dented our expectations of a rebound to pre-pandemic levels by FY22,” Fitch said.
The updated 2021 outlook for Indian banks factors in muted prospects for new business due to weak corporate and consumer confidence, banks’ continuing high-risk aversion and below-trend credit demand, it said.
Further, while regulatory relief measures had postponed underlying asset-quality issues in the short term, banks’ medium-term performance would be dented without a meaningful economic recovery, said the report titled ‘Improving Performance at the Cost of Delayed Stress Recognition’.
The agency expected impaired loans to peak after FY23 since stress was likely to manifest over a fairly protracted timeframe on account of loans to micro, small and medium enterprises under the emergency credit guarantee scheme.
Yet, India’s rebound potential was still better than most of its comparable BBB- rated peers as Fitch did not expect a structurally weaker real gross domestic product growth outlook.
The report noted that rapid vaccination could support a sustainable revival in business and consumer confidence.
“The low vaccination rate makes India vulnerable to further waves of the pandemic; only 4.7% of its 1.37 billion population was fully vaccinated as of 5 July 2021,” Fitch said, adding that this posed a significant risk to meaningful and sustainable economic recovery
Recently, other global rating agencies like S&P and Moody’s lowered their growth estimates to 9.5% and 9.3% in the current fiscal, respectively, while the Reserve Bank of India projected the figure at 9.5%.
