Covid infections has increased asset risks for Indian banks, but a severe deterioration is unlikely. Second infection wave will lead to new problem loans in the retail and SME segments, but a severe asset quality decline is unlikely, it said, as banks' improved profitability, capital and loss buffers will help them absorb anticipated loan losses and maintain credit strength.
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.