But the Covid-19 pandemic will likely slow the resolution of bad-debt situations, saddling banks
with a huge stock of bad loans next year. “We assume only about a 100 basis-point improvement in NPAs in FY22,” it added.
The effect on finance
companies will be more pronounced than on banks, it said. This is mainly because some finance
companies lend to weaker customers and have high reliance on wholesale funding. These companies were already facing a trust deficit since the 2018 default of Infrastructure Leasing & Financial Services.
companies also face accentuated liquidity risks due to a high proportion of borrowers opting for the loan moratorium, the rating agency said.
Credit growth is expected to remain weak in the current fiscal year. “We estimate low single-digit loan growth for the system for the current year, mainly driven by government-guaranteed small businesses loans and the capitalisation of accumulated interest,” S&P
The government on May 26 launched a Rs 3-trillion emergency credit scheme for micro, small and midsize enterprises, to help them tide over the pandemic’s impact. Otherwise, lending should remain slow due to tepid demand and banks turning risk averse (despite ample liquidity), it said.