Relief measures announced by India’s central bank last week to help lenders and borrowers during the new devastating wave of COVID-19 infections will only delay the stress for financial institutions, Fitch Ratings said on Monday.
The Reserve Bank of India (RBI) rolled out last Wednesday a slew of measures including a loan restructuring scheme to help lenders tide over mounting bad loans and give some borrowers more time for debt repayment.
Fitch said these measures would provide some relief to financial institutions over the next 12-24 months but at the expense of delaying the recognition and resolution of underlying asset-quality problems.
The central bank may unveil more measures to support the financial sector, like credit guarantee schemes or a blanket moratorium, if indications of economic stress mount, the ratings agency said.
Asia’s third-largest economy is battling a ferocious surge in coronavirus cases that has forced several states to go into lockdowns, although institutions like Fitch expect the shock to economic activity will be less severe than in 2020.
“The authorities are implementing lockdowns more narrowly, and companies and individuals have adjusted behaviour in ways that cushion the effects,” Fitch said in a report.
However, it said disruptions could persist longer and spread further than its baseline case scenario, especially if lockdowns were introduced in more regions or nationwide, noting that a drop in April-May activity would delay the country’s recovery.
Last week, S&P Global Ratings said its outlook on India’s sovereign debt remained stable, even though surging cases could threaten the economic recovery it had seen so far.
India could remain vulnerable to further waves of the pandemic even once the current surge subsides due to its slow pace of vaccination, Fitch warned.