Fitch slashes FY22 India
On Wednesday, the Global rating agency Fitch slashed its India GDP growth forecast for the current fiscal to 10% from 12.8% expected earlier, expressing that renewed restrictions in the wake of the second covid wave have slowed recovery efforts.
The speedy vaccination could support a sustainable revival in business and consumer confidence; as without it, economic recovery would remain vulnerable to further waves and lockdowns, the company stated.
Hereby, it connects with a number of agencies to trim India’s growth forecast for FY22, thanks to the damage caused by the second wave.
S&P cut its India growth projection for FY22 to 9.5% from 11% recently. Alike, Moody’s has slashed its forecast to 9.3% from 13.7%. The Reserve Bank of India trimmed its growth forecast for the country to 9.5% from 10.5% projected in April. Several agencies have pegged their FY22 growth estimates in the range of 8.5-10%.
The low vaccination rate makes India vulnerable to further covid waves, Fitch quoted. Merely, 4.7% of the country’s population was fully vaccinated as of July 5.
Flagging matters with the banking system, the agency emphasized that regulatory relief measures have delayed underlying asset-quality issues of the lenders for now. But their medium-term performance will be intended without a meaningful economic recovery.
Fitch said state-run banks are at a higher risk, given their average common equity Tier-1 capital is around 600 basis points lower than that of private peers. In comparison between private banks and state-run ones, the average return on assets is four times higher than private banks.
Furthermore, the private banks raised higher equity capital from the market in FY21, having ranked in almost $6.8 billion from the capital markets, against $4.4 billion by PSBs.
The impaired loan ratio decreased to 75% in FY21 from 8.5% a year earlier. But this ratio was supported by reducing fresh bad loans as well as high levels of write-offs.
The continued relief measures aimed at covid-19 affected areas including micro, small and medium enterprises, helped put off the recognition of problems with asset quality, said the agency.