S&P Global Ratings analyst Deepali Seth Chhabria said on Wednesday that Indian banks may face some downside from the Russia-Ukraine crisis, which could lead to higher inflation and some stress for borrowers.
“The outlook on Indian banks continues[s] pockets of tension could emerge as Indian banks already have a large pile of vulnerable assets and progress on their resolution has been slow,” Ms Chhabria told Reuters.
He said the direct investment of Indian banks in Russia and Ukraine is limited and the direct impact from the conflict is likely to be minor.
According to the central bank, the gross non-performing assets of Indian banks stood at 6.9% of the total assets as of September 2021. In December, the Reserve Bank of India warned that bad loans in commercial banks in India could grow between 8.1% and 9.5% by September 2022.
However, Ms Chhabria said she believes credit costs for Indian banks, which are already at their lowest levels in the past seven years, could come down to 1.5% next year and on par with emerging markets. Might be possible.
“There is some stress in the retail and small and medium enterprises sectors, given that the recovery has been uneven so far, but the residual stress should start to ease as the economy picks up further,” he said.
S&P expects the Indian economy to grow at 9.8% in the current fiscal, which ends in March, and stay above trend to achieve 7.8% growth in FY 2022-23.