Repayment pressure to test bank loan underwriting quality: Fitch


Growing repayment pressure on some borrowers, especially micro, small and medium enterprises amid rising interest rates in India, will test the quality of banks’ loan underwriting,

However, asset quality risks from higher rates should generally be moderate for most banks, he said in a statement.

Higher rates will also affect securities valuations and could make it more difficult for banks to raise fresh capital, particularly in state-owned banks, although wider net interest margins (NIMs) will have knock-on effects. offsetting positive credits, he added.

The Reserve Bank of India (RBI) raised its key rates by 50 basis points to 4.90% in June.

“We expect rates to rise further, reaching 5.90% by the end of 2022 and 6.15% by the end of 2023, then remaining at this level until 2024,” he said. , adding that banks were quick to pass on higher rates to loan portfolios. , which are mostly buoyant in nature but have been slower to increase deposition rates.

This trend should support a higher NIM, but the lack of competition for deposits could indicate relatively subdued demand for new credit, he said.

“We expect banks’ capital buffers to remain commensurate with current ratings in the near term, although lower capitalization will be a greater constraint on loan growth at state-owned banks than at their competitors. from the private sector.

“Higher interest rates could make it more difficult to raise additional private capital, making state banks more dependent on government equity injections if they are to retain market share,” he added. .

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