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Ukraine invasion puts pressure on Indian banks

Ukraine invasion puts pressure on Indian banks

Indian banks are likely to come under pressure as the Russia-Ukraine crisis rumbles on, which could lead to higher inflation and some stress for borrowers, according to S&P Global Ratings.

Company analyst Deepali Seth Chhabria said: “The outlook on Indian banks continue[s] to remain stable but pockets of stress may emerge due to the conflict as Indian banks already have a huge pile of weak assets and progress on their resolution has been slow.” She added that the situation was being closely monitored.

Indian banks have only a limited direct exposure to Russia and Ukraine, with the direct impact from the conflict likely to be marginal, Chhabria said.

In December, the Reserve Bank of India warned that bad loans at commercial banks in India could rise to between 8.1% and 9.5% by September 2022. However, Chhabria said she believed the credit cost for Indian banks, already at its lowest level for the past seven years, could reduce to 1.5% next year and be comparable to the cost of credit in emerging markets.

“There are some pockets of stress that we see in retail and the small and medium enterprises sectors, given that the recovery so far has been uneven, but with a further pick-up in the economy the residual stress should start abating,” she said.

S&P expects the Indian economy to grow 9.8% in the current fiscal year, which ends in March, and stay above trend to achieve growth of 7.8% in the 2022-23 fiscal year.

 

Retail inflation passes 6%

India’s average retail inflation hit an eight-month high of 6.07% in February 2022, up marginally from 6.01% in January. However, rural India saw a sharper price rises at 6.38%; for urban consumers the inflation rate dropped slightly from 5.91% in January to 5.75% in February.

Food prices rose, with Consumer Food Price Index inflation rising to 5.85% in February, up from 5.43% in January. Food and beverages inflation hit a 15-month high and the rising prices of edible oils are likely to pose a challenge in the coming months, according to ICRA chief economist Aditi Nayar.

Meanwhile, inflation in wholesale prices hit 13.11% in February, staying above 10% for the eleventh month in a row, with fuel and power inflation climbing sharply from January 2022 levels. Manufactured products’ inflation accelerated to nearly 10%, and with input costs staying high, the high prices for producers could feed into more retail inflation in coming months, Nayar said.