Aided by strong demand recovery, credit ratio rebounds to 1.33 in H2FY21, from 0.54 in H1FY21. GDP could grow at 11% in FY22, but the resurgence in Covid-19 cases is a key downside risk, says CRISIL.
According to a BofA Securities report, the Covid-19 shock could delay India touching the GDP of Japan by three years. In their latest estimates, it will now happen by 2031 if the economy grows at 9%.
While Indian banks' improved financial metrics do not fully reflect the impact of the Covid-19 pandemic, the under–capitalised PSBs are likely to remain risk averse and lose market share.
Apart from recapitalisation, public sector banks get a shot in the arm in the form of ARC and AMC mechanisms to clean up their books.
According to the RBI, the gross NPA ratio of all scheduled commercial banks may increase from 7.5% in September 2020 to 13.5% by September 2021, and even escalate to 14.8% in severe stress scenario.
Balance sheets being closely watched; SBI’s price to book ratio of 0.3 times convinces the new chairman that the market values the bank well.
While the rating agency downgraded India’s sovereign rating, BofA Securities’ economists see the present downturn as cyclical rather than structural; say fiscal stimulus is critical for recovery.
Coronavirus could be a catalyst for resetting the agenda of India’s financial market reforms, says Mark Matthews, head of research-Asia, Julius Baer.
Data reveals that the loss-making and NPA-heavy public sector banks have serious efficiency issues.
If the government moves fast on strategic sale, consolidation among various public sector units, and bringing down its stake to below 51% in CPSEs, it may achieve its disinvestment target.
