Fitch Ratings recently cut India’s growth forecast to 10 per cent for this fiscal from the earlier estimate of 12.8 per cent due to slowing recovery following the second COVID-19 wave, saying rapid vaccination could support a sustainable revival in business and consumer confidence. The challenges for the banking sector have increased due to a virulent second wave in the first quarter of this fiscal, it said.
“Fitch Ratings revised down India’s real GDP for FY22 by 280 bp [basis points] to 10 per cent, underlining our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation in FY22,” it said.
It said localised lockdowns during the second wave kept economic activity from stalling to levels similar to those during 2020, but disruption in several key business centres has slowed the recovery and dented Fitch’s expectations of a rebound to pre-pandemic levels by FY22. India’s economy contracted 24.4 per cent in the June quarter of 2020.
There is also a risk that India’s medium-term growth could suffer if the business and consumer activity were to experience scarring from the COVID-19 pandemic. The rating agency estimates India’s medium term growth potential at about 6.5 per cent.
Fitch said low vaccination rate makes India vulnerable to further waves of the pandemic.
Indian economy contracted by 7.3 per cent in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 per cent growth in 2019-20.
Fitch further said that regulatory relief measures have postponed underlying asset-quality issues for now, but banks’ medium-term performance will be dented without a meaningful economic recovery.
Fitch expects banks’ exposure to stressed micro, small and medium enterprises and retail borrowers to rise further with the increasing relief outlay, and is likely to compel banks especially state-owned ones to slow regular lending in the absence of adequate core capital cushions and weak contingency buffers.
Fibre2Fashion News Desk (DS)
Fitch Ratings has cut India’s growth forecast to 10 per cent for this fiscal from the earlier 12.8 per cent estimate due to slowing recovery following the second COVID-19 wave, saying vaccination could support a sustainable revival in business and consumer confidence. The challenges for the banking sector have risen too in the first quarter of this fiscal.