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Business News/ Industry / Banking/  India’s banking system to be among last to recover: report
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India’s banking system to be among last to recover: report

For India, Mexico and South Africa, a recovery to pre-covid-19 levels may not arrive until after 2023, says S&P report

Private sector and state-run banks had an aggregate bad loan burden of ₹8.42 trillion as on 30 June, showed data from Capitaline.Premium
Private sector and state-run banks had an aggregate bad loan burden of 8.42 trillion as on 30 June, showed data from Capitaline.

Mumbai: India’s banking system will be among the last in the world to recover from disruptions caused by the covid-19 pandemic, a report by rating agency S&P has pointed out.

“For India, Mexico and South Africa, a recovery to pre-covid-19 levels may not arrive until after 2023," the report said on 23 September. “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."

Private sector and state-run banks had an aggregate bad loan burden of 8.42 trillion as on 30 June, showed data from Capitaline.

According to the report titled “Global banking: recovery will stretch to 2023 and beyond", recovery of banking jurisdictions will be slow, uncertain, and highly variable across sectors and geographies. Many prominent banking systems may not recover until 2023, including the US, UK, France, Germany, Spain, Italy, Japan, Australia, Brazil, Indonesia, and Russia.

However, countries like China, Canada, Singapore, Hong Kong, South Korea, and Saudi Arabia, it pointed out, are among the banking systems likely to recover first--by the end of 2022.

“Covid-19 and the oil price shock of 2020 are taking a heavy toll on global banks. S&P Global Ratings has taken 335 negative rating actions globally since the outbreak began, and we anticipate it will be difficult for the financial strength ratings on financial institutions to return to pre-crisis levels," the report said.

It said that the path to recovery will be more painful for emerging markets such as India and banks' recovery to long-term averages for key asset quality and profitability ratios will take years.

To estimate the shape of recovery for banks, S&P Global Ratings has analyzed 20 of the largest banking systems globally. These 20 banking jurisdictions are segmented into three groups: early-exiters, mid-exiters, and late-exiters, depending on their estimated recovery to pre-covid status.

“The Indian banking sector is considered a late-exiter," S&P said, adding that there were significant asset-quality issues in India prior to the pandemic, while asset quality was on an improving trend in many other jurisdictions.

The impact of the pandemic and an ensuing lockdown in March, left millions without jobs in India as the economy came to a near-grinding halt. However, the growth of infections continues unabated even as the economy is gradually reopening. S&P said as on 21 September, covid-19 infections in China were under 100,000 and was much lower than Brazil (4.5 million), India (5.4 million), and Russia (1.1 million), citing Johns Hopkins Coronavirus Research Center.

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 24 Sep 2020, 03:18 PM IST
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