Global rating agency, Standard and Poor's, on June 30 said Indian banks face systemic risk as the country sorts through the aftermath of the COVID second wave.
The agency expects the second wave to impair performance of Indian financial institutions in the first half of fiscal year 2022, it said in a statement.
Also, banking sector's weak loans will likely remain elevated at 11%-12% over the next 12 to 18 months, the rating agency said, adding credit losses should remain high at 2.2% before recovering to 1.8% in FY23.
"Credit extended by banks fell by ~ 1% in first two months of FY22; drop was largely seasonal. Collection efficiency for a number of finance companies fell by upto 5%-15% in April and May," the agency said.
Further, SME borrowers comprising ~17% of total loans, and low-income households most affected, S&P said, adding tourism and recreation related sectors, commercial real estate, and unsecured retail loans may contribute to higher NPAs.
On the positive side, housing finance (excluding affordable housing) and gold loans will likely be less affected while finance companies will likely be more impacted than banks, S&P said.
Banks are better prepared to bounce back from second wave than they were during the last downcycle, S&P said.