Covid-19 second wave to slow recovery, but less damage than 2020
The resurgence of coronavirus infections could delay India’s economic recovery, leave long-term scars and heighten risks for lenders although the economic impact of the latest Covid wave may be less severe than last year’s, rating agencies said.
A Fitch Ratings Inc. analysis on Monday said the relief measures announced by the Reserve Bank of India (RBI) on May 5 will offer some relief to financial institutions in the next 12-24 months, but at the expense of deferring the recognition and resolution of underlying asset quality problems.
Fitch, however, said the economic impact of the second wave could be less than the impact seen last year. “We expect the shock to economic activity from the latest wave of the pandemic in India to be less severe than in 2020, even though caseloads and fatalities are much higher. The authorities are implementing lockdowns more narrowly, and companies and individuals have adjusted behaviour in ways that cushion the effects,” it said.
It noted that there is a risk that the disruption could persist longer and spread further if lockdowns are introduced in more regions, or imposed nationwide. It also said that the risk of rising coronavirus infections may add to the headwinds facing banks and non-bank lenders due to asset quality pressures.
The central bank had announced liquidity-boosting and loan-restructuring steps earlier this month. Fitch Ratings said the reintroduction of a restructuring scheme for individuals and small businesses may be significant for lenders.
Crisil Research said the first half of 2021-22 would be supported by a base effect, but clouded by the spread of infections, while the second half would be backed by better-spread economic growth owing to increased inoculations and better adaptability to the pandemic. Stronger global growth could also support Indian economy in the second half, Crisil Research said in an analysis on Monday.
India Ratings and Research (Ind-Ra) said the second wave will be less disruptive than the first wave for the business environment, despite the case load per day reaching more than four times the peak level attained during the first wave. This is because the administrative response is likely to be confined to local lockdowns. It has forecast 10.1% growth in an analysis on Monday. It expects incremental counter-cyclical fiscal spending to be muted in 2021-22, given the stretched fiscal condition.