Analysts see loan defaults rising this year as companies hit by Covid-19 shutdowns go out of business
The impact of the coronavirus pandemic and the nationwide lockdown is raising concerns about the health of India’s banking sector, which was wobbling under a mountain of bad debt even before the outbreak.
Analysts are now predicting a wave of loan defaults this year as companies go out of business because of pandemic-related shutdowns or struggle to service their debts amid reduced income.
“The economy is going through a very troubled time and I think we will see a lot more stress going forward,” says Jimeet Modi, founder and chief executive of Mumbai-based Samco Securities. “A lot of the stress will be contributed by small and medium-sized businesses and the banking and financial services sector. We expect a lot of SMEs will end up defaulting on their loan and interest repayments, which will create a vicious cycle and further difficulties for banks and non-banking financial companies.”
India’s banking sector has been struggling with ever-increasing levels of bad loans, triggered by a series of defaults by corporations, individual clients, and other smaller businesses over the past few years.
Authorities had taken steps to strengthen the ailing banking sector and tighten lending practices in Asia’s third-largest economy. These included mergers of state-run banks and placing several lenders on the watch list of the country’s central bank – the Reserve Bank of India (RBI).
