Moneycontrol PRO
you are here: HomeNewsWorld

Second wave of COVID infections increased bank's asset quality risks: Moody's

It said that the second wave of coronavirus infections in India has exacerbated stress among individuals and small businesses that were hit the hardest by the initial outbreak. Still, a number of factors will prevent sharp increases in problem loans, and banks have sufficient buffers to absorb anticipated loan losses.

August 26, 2021 / 01:48 PM IST
Representative image

Representative image

Moody's Investors Service on Thursday said second wave of Covid infections has increased asset risks for Indian banks, but a severe deterioration is unlikely.

It said that the second wave of coronavirus infections in India has exacerbated stress among individuals and small businesses that were hit the hardest by the initial outbreak. Still, a number of factors will prevent sharp increases in problem loans, and banks have sufficient buffers to absorb anticipated loan losses.

The country's economic recovery, a tightening of loan underwriting criteria and continued government support will prevent a sharp spike in problem loans, it said.

“A severe deterioration of banks' asset quality is unlikely, despite an expected rise in new loan impairments particularly among individuals and small businesses that were hit hardest by the virus outbreak.

“This is because government initiatives like the emergency credit linked guarantee scheme (ECLGS) have been effective in providing immediate liquidity for businesses,” Moody's Vice President and Senior Credit Officer Alka Anbarasu said.

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

In addition, accommodative interest rates and loan restructuring schemes will continue to mitigate asset risks, such that the coronavirus resurgence will delay but not derail the improvements in banks' balance sheets that had begun before the pandemic.

Moody's baseline expectation is that newly formed non-performing loans (NPLs) at public sector banks will increase nearly 50 per cent to about 1.5 per cent of gross loans annually in the next two years.

Nevertheless, banks' average NPL ratios will remain largely stable, driven by the resolution of legacy NPLs and an acceleration of credit growth, Moody's added.
PTI
first published: Aug 26, 2021 01:48 pm
Sections
ISO 27001 - BSI Assurance Mark