Covid-19 Disruption In India Could Persist Longer & Spread Further: Fitch Ratings

There is a risk that disruption in India could persist longer and spread further than its baseline case assumes, particularly if lockdowns are introduced in more regions, or nationwide, Fitch Ratings has said in a release.

"Indicators show activity dropped in April-May, which is likely to delay the country's recovery, and the number of newly recorded cases remains extremely high. There is a risk that disruption could persist longer and spread further than our baseline case assumes, particularly if lockdowns are introduced in more regions, or nationwide.

We argued in April that the surge in Covid-19 cases could add to headwinds facing India's banks and non banking financial institutions (NBFIs) if it led to a resurgence in asset quality pressures. The latest data suggest that this risk is mounting," Fitch Ratings has said.

Among the RBI's measures, the reintroduction of a restructuring scheme for individuals, small businesses and MSMEs (micro, small and medium-sized enterprises) may be significant for FIs, Fitch Ratings has said. It covers those which have not previously taken up restructuring, but also allows flexibility to extend the period of moratorium and/or the residual tenor by up to two years for previously restructured amounts.

"The scheme, which runs until end-September 2021, may provide borrowers with additional time to resolve repayment stresses and allow financial institutions to spread credit costs over a longer period. Take-up under the last scheme, which ran to March 2021, was modest. However, the economy at the time was posting a strong post-lockdown recovery. Since then, we believe risks to small businesses have risen, particularly as many would have balance sheets that have weakened since 2020. Meanwhile, many individuals face medical bills that will add to strains on their income and savings," the rating agency has noted.