Money & Banking

Indian banking system may be amongst last to recover: S&P report

Our Bureau Mumbai | Updated on September 24, 2020 Published on September 24, 2020

A State Bank of India branch in Mumbai   -  Bloomberg

Recovery may stretch beyond 2023

The country’s banking system may be amongst the last to recover compared to global from the current Covid-19 led turmoil, said a new report by global rating agency Standard and Poor’s.

“India, Mexico, and South Africa are among the banking systems that will be slower to recover to 2019 levels — likely beyond 2023,” it said in a report on Thursday.

The report on Global Banking said that recovery of banking jurisdictions to pre-Covid-19 levels will be “slow, uncertain, and highly variable across sectors and geographies”.

Also read: Why private banks’ average lending rate on new loans has gone up

While many prominent banking systems may not recover until 2023 including the US, the UK, France, Germany, Spain, Italy, Japan, Australia, Brazil, Indonesia, and Russia, others like China, Canada, Singapore, Hong Kong, South Korea, and Saudi Arabia are likely to recover first — by the end of 2022, it further said.

“Emerging-market banks will likely see a sharp increase in credit losses in 2020,” it said, adding that there is potential for a gradual improvement in the following years if economic activity rebounds.

Also read: Restructuring will lead to increase in loan-to-value and higher EMI to income ratio

It also cautioned that the path to recovery will be more painful for emerging markets such as India. “The banks’ recovery to long-term averages for key asset quality and profitability ratios will take years,” it further said.

Late exiter

It noted that the Indian banking sector is considered a “late-exiter”. However, while the recovery will be longer, but some ratios may return more quickly to pre-Covid-19 levels as they were weak prior to the onset of Covid-19 (in contrast with many other jurisdictions).

“There were significant asset-quality issues in India prior to the onset of Covid-19, while asset quality was on an improving trend in many other jurisdictions,” the report noted.

S&P also noted that it has taken negative rating actions on Indian banks and NBFIs as operating conditions have deteriorated through the crisis. The country entered the pandemic with an overhang of high non-performing assets, it further said.

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Published on September 24, 2020
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