Indian banks may face headwinds from Russia-Ukraine crisis: S&P

Indian banks could face headwinds from the Russia-Ukraine crisis, which could lead to higher inflation and some stress for borrowers, Deepali Seth Chhabria, an analyst at S&P Global Ratings, said on Wednesday, adding the situation is getting detailed supervised.

“The prospects for Indian banks continue[s] remain stable, but pockets of stress could arise due to the conflict as Indian banks already have a huge pile of weak assets and progress on their resolution is slow,” Ms Chhabria told Reuters.

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

According to the central bank, gross non-performing assets of Indian banks accounted for 6.9% of total assets in September 2021. In December, the Reserve Bank of India warned that non-performing loans at commercial banks in India could rise to between 8.1% and 9.5% by September 2022.

However, Ms Chhabria said she believes borrowing costs for Indian banks, already at their lowest in seven years, could fall to 1.5% next year and be comparable to emerging markets.

“There are some hot spots that we are seeing in the retail and small and medium business sectors as the recovery has been patchy so far, but as the economy continues to recover, the residual stress should ease,” she said.

S&P expects the Indian economy to grow 9.8% in the current fiscal year ending in March and to remain above trend in fiscal year 2022-23 with a growth of 7.8%.

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