Categories: Business

Indian bank to face asset quality earning pressure for next 2 years says fitch

Photo: FILE

Fitch on Indian bank

new Delhi. Banks in the country may face greater pressure on asset quality and earnings for at least two years due to difficulties arising in business and supply chains. Apart from this, the reduction in personal income of the people may also put pressure on the recovery of debt and books of banks. Fitch Ratings has expressed this fear in a report. The report released by the rating agency on the subject of 'Fragile situation of Indian banks due to epidemic pressure' said that the information given about the performance of banks in the financial year ended March 2020 reflects the pressure generated by the epidemic. does not do. It said, "The impact of the stringent 'lockdown' measures implemented on India's book accounts from March 25 is yet to be seen. Not only this, the chances of recovery in the short term are less. The reason for this is the rapid increase in new cases of Kovid-19. This has increased the apprehension about opening the economy slowly. "

According to the report, the ratio of Indian banks' impaired loan ratio, which is not expected to return from the total debt, decreased to 8.5% in 2019-20 from 9.3% in 2018-19. The reason for this is the apprehension about the repayment of some new debt and the debt being continuously written off. Many public sector banks have come in profit due to lower cost of loans but the returns on assets of banks were low. According to the rating agency, "Fitch believes that the pressure on asset quality and earnings will remain high for banks for at least two years." The reason for this is due to constraints in business activities and supply system. Apart from this, the decrease in personal income of the people may put pressure on the books of the banks. ”

The report states that public sector banks are in a more fragile position than private sector banks, with a weak ability to bear losses and the responsibility to encourage non-proportionally affected areas when it comes to crisis. According to Fitch, under this pressure, Indian banks will need at least $ 15 billion of new capital to meet the 10 percent weighted-average shared equity tier-1 ratio. He also said that if the situation worsens and the domestic economy fails to overcome the corona virus epidemic hurdles, the amount will increase to about $ 58 billion. According to Fitch, public sector banks will need solid capital as there is a higher risk of deteriorating capital quality in PSBs than in private sector banks. The rating agency has forecast a 5 percent decline in the economy in the current financial year.

This post was published on July 1, 2020 9:30 pm

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