Indian banks may face headwinds as a result of the Russia-Ukraine crisis, which could result in higher inflation and increased stress for borrowers, S&P Global credit analyst Deepali Seth Chhabria said on Wednesday, adding that the situation was being closely monitored.
“The outlook for Indian banks remains stable,” Ms. Chhabria told Reuters. “However, pockets of stress may emerge as a result of the conflict, as Indian banks already have a large pile of weak assets and progress on their resolution has been slow.”
Indian banks have direct exposure to Russia and Ukraine
Indian banks have limited direct exposure to Russia and Ukraine, and the conflict’s direct impact is likely to be minimal, she said. According to the central bank, gross non-performing assets of banks (Indian) totaled 6.9 percent of total assets in September 2021. The Reserve Bank of India warned in December that bad loans at India’s commercial banks could increase to between 8.1 percent and 9.5 percent by September 2022.
Ms. Chhabria, on the other hand, stated that she believed the credit cost for Indian banks, which is already at its lowest level in seven years, could fall to 1.5 percent next year, making it comparable to emerging markets.
“While there are pockets of stress in the retail and small and medium-sized business sectors, given the economy’s uneven recovery thus far, residual stress should begin to ease,” she said. S&P expects the Indian economy to grow 9.8% in the current fiscal year, which ends in March, and 7.8% in fiscal 2022-23.