Repayment pressure to test banks' loan underwriting quality: Fitch

Mounting repayment pressure for some borrowers, particularly micro, small and medium-sized enterprises, amid India's interest rate hikes will test banks' loan underwriting quality, Fitch Ratings said

credit, lending, loans, support, fiscal stimulus, money
Illustration: Ajay mohanty
Press Trust of India New Delhi
2 min read Last Updated : Jul 14 2022 | 5:09 PM IST

Mounting repayment pressure for some borrowers, particularly micro, small and medium-sized enterprises, amid India's interest rate hikes will test banks' loan underwriting quality, Fitch Ratings said on Thursday.

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

Higher rates will also affect securities valuations and could make it harder for banks to raise fresh capital, particularly at state banks, although wider net interest margins (NIM) will have offsetting positive credit effects, it added.

The Reserve Bank of India (RBI) raised policy interest rates by 50 bps to 4.90 per cent in June.

"We expect rates to rise further, reaching 5.90 per cent by end-2022 and 6.15 per cent by end-2023, then remaining at this level through 2024," it said, adding banks have been quick to pass on higher rates through loan portfolios, which are mainly floating in nature but have been slower in raising deposit rates.

This trend should support higher NIM, but the lack of competition for deposits may point to relatively muted demand for new credit, it said.

"We expect banks' capital buffers to remain commensurate with current ratings in the near term, although weaker capitalisation will be a greater constraint on loan growth at state banks than at private-sector rivals.

"Higher interest rates could make raising additional private capital more challenging, making state banks more reliant on equity injections from the government if they are to maintain market share," it added.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

More From This Section

Topics :FitchFitch RatingsBank loans

First Published: Jul 14 2022 | 5:09 PM IST

Next Story