ECONOMY

Russia-Ukraine war set to hamper Indian banks’ growth, warns S&P Global Ratings

Indian banks might face some headwinds from the Russia-Ukraine crisis, which could lead to higher inflation and some stress for borrowers, S&P Global Ratings analyst Deepali Seth Chhabria said on Wednesday, adding that the situation was being closely monitored. 


“The outlook on Indian banks continue(s) to remain stable, but pockets of stress may emerge due to the conflict as Indian banks already have a huge pile of weak assets, and progress on their resolution has been slow,” Ms Chhabria told the Reuters. 


Indian banks’ direct exposure to Russia and Ukraine was limited, and the direct impact from the conflict was likely to be marginal, she said. 


Gross non-performing assets (NPAs) of Indian banks were at 6.9 per cent of total assets as of September 2021, according to the central bank. In December last year, the Reserve Bank of India (RBI) had warned that bad loans at commercial banks in India could rise to between 8.1 and 9.5 per cent by September 2022. 


However, Ms Chhabria said that she believed the credit cost for Indian banks, already at its lowest level for the past seven years, could reduce to 1.5 per cent next year and be comparable to emerging markets. 


“There are some pockets of stress that we see in retail and the small and medium enterprises sectors, given that the recovery so far has been uneven, but with a further pick-up in the economy, the residual stress should start abating,” she said. 


S&P expects the Indian economy to grow by 9.8 per cent in the current financial year, which ends in March, and stay above trend to achieve growth of 7.8 per cent in 2022-23. 

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