‘Indian banking to be among the last to recover’

Will take another 3 years to reach the 2019 levels, says S&P

India’s banking system may be amongst the last to recover from the Covid-19 pandemic, global rating agency S&P has said, cautioning it will take another three years for the banks and NBFCs in the country to reach the 2019 levels.

Same will be the case with emerging markets like Mexico and South Africa while China, Canada, Singapore, Hong Kong, South Korea, and Saudi Arabia will be among the banking systems which could recover first - by the end of 2022, S&P said in a report titled “Global banking: recovery will stretch to 2023 and beyond”.

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Many prominent banking systems too may not recover until 2023, including the US, UK, France, Germany, Spain, Italy, Japan, Australia, Brazil, Indonesia, and Russia but the path to recovery will be more painful for emerging markets such as India.

“We have taken negative rating actions on Indian banks and non-banking financial institutions (NBFIs) as operating conditions have deteriorated through the crisis. The country entered the pandemic with an overhang of high nonperforming assets,” according to the rating agency, which analysed 20 of the largest banking systems globally and found India in the bottom most category of late-exiters.

In a separate report, domestic rating agency India Ratings and Research said it has maintained a negative outlook on NBFCs and housing finance companies for the second half of 2020-21.

It said growth in assets under management would be flattish for NBFCs as against its earlier estimate of 8%-10% year-on-year, and in lower single digits for HFCs in 2020-21.

The unabated spread of the virus at pan-India level, time required for NBFC operations to return to normalcy could be prolonged.

Although the liquidity and funding environment has improved for better-rated entities after July, there would be asset quality issues impacting overall profitability in 2020-21 and beyond, it said, adding, however, slippages could be higher for certain segments, resulting into higher credit costs.