India’s COVID surge to impede borrowers’ debt repayment capacity: Moody’s

The economy will return to growth by end of the fiscal year, but asset quality will remain in doldrums.

India’s recent coronavirus outbreak will impede borrowers’ debt repayment capacity and increase local banks’ asset risks, reports Moody’s Investors Service.

The ratings agency projects that the Indian economy will return to growth by the end of the current fiscal year—but the severe second coronavirus outbreak will delay improvements in asset quality. 

“However, banks' strong loss-absorbing buffers, policy support, and the virus impact focused on a few segments will keep their credit strength intact,” Moody’s added.

In contrast, the resumption of global economic activity will boost trade growth in Vietnam, Malaysia, and Singapore. This will help offset domestic economic disruptions from the pandemic, although slow deployment of vaccines is a risk for Vietnam.

Continued policy support and strong loss-absorbing buffers in India will help mitigate the negative impact.

“Continued policy support for borrowers from governments and central banks will prevent sharp increases in defaults on bank loans. And the financial impact of a prolonged pandemic is concentrated on a few economic segments, which will limit the deterioration in banks' overall asset quality,” the report read.

Apart from India, other markets in Asia also face challenges from new COVID-19 surges. Banks in Thailand, the Philippines, and Indonesia are notedly particularly vulnerable as their economies struggle with the new virus cases, leading to uncertainties regarding their economies reopening, warns Rebecca Tan, Moody’s vice president and senior analyst.

"Yet, policy support for borrowers and the concentration of the impact on a few economic segments will limit the deterioration in banks' overall asset quality," Tan added.