Fitch Ratings on Wednesday said the operating environment for Indian banks has strengthened as economic risks associated with the Covid-19 pandemic have ebbed.
A number of prudential indicators for the sector have also improved compared to pre-pandemic levels, and the operating environment score continues to benefit from the economy’s well-diversified structure, which helps to reduce banks’ exposure to specific sector-focused shocks.
“The large size of the economy and India’s favourable demographics should offer banks opportunities to generate profitable business and diversify risk and revenue,” Fitch said in a statement.
Fitch revised its OE (operating environment) mid-point score for Indian banks to ‘bb’ from ‘bb+’ in March 2020 after assessing that the pandemic was likely to worsen the existing OE stresses facing the sector.
“The operating environment for Indian banks has strengthened as economic risks associated with the Covid-19 pandemic have ebbed,” the global rating agency said.
India was badly affected by the pandemic, but the associated risks have now receded. The easing of pandemic-related risks has been accompanied by a strengthening of capital buffers, it said.
Fitch further expects banks to benefit from the gradual formalisation of the SME sector through initiatives like the Goods and Services Tax and rapid digitalisation (including payment systems), which will improve the prospects for providing services at acceptable levels of risk to this substantial part of the market.
In May, Fitch affirmed India’s sovereign rating at ’BBB-/Stable’. Real GDP growth is forecast to average 6.4 per cent annually in the three years to March 2026 (FY23-FY25), putting India among the fastest-growing sovereigns in our rated portfolio.
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