INSUBCONTINENT EXCLUSIVE:
Last month, World Bank slashed its GDP growth forecast for current fiscal to 8.3 per centFitch Ratings on Wednesday cut India's growth
forecast to 10 per cent for the current fiscal, from 12.8 per cent estimated earlier, due to slowing recovery post second wave of COVID-19,
and said rapid vaccination could support a sustainable revival in business and consumer confidence.In a report, the global rating agency
said the challenges for banking sector posed by the coronavirus pandemic have increased due to a virulent second wave in the first quarter
of the financial year ending March 2022 (FY22)."Fitch Ratings revised down India's real GDP for FY22 by 280bp to 10 per cent, underlining
our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue
generation in FY22," it said.Fitch believes that rapid vaccination could support a sustainable revival in business and consumer confidence;
however, without it, economic recovery would remain vulnerable to further waves and lockdowns.It said localised lockdowns during the second
wave kept economic activity from stalling to levels similar to those during 2020, but disruption in several key business centres has slowed
the recovery and dented Fitch's expectations of a rebound to pre-pandemic levels by FY22
India's economy contracted 24.4 per cent in June quarter of 2020.Fitch views India's rebound potential to be better than most comparable
''BBB-'' peers because it does not expect a structurally weaker real GDP growth outlook
However, there is a risk that India's medium-term growth could suffer if the business and consumer activity were to experience scarring
from the COVID-19 pandemic.The agency estimates India's medium term growth potential at about 6.5 per cent.Stating that vaccination is key
for business revival and relief measures would only provide interim support, Fitch said the low vaccination rate makes India vulnerable to
further waves of the pandemic."Only 4.7 per cent of its 1.37 billion population was fully vaccinated as of July 5, 2021..
This poses risks to the prospects of a meaningful and sustainable economic recovery," it added.Indian economy contracted by 7.3 per cent in
fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 per cent growth in 2019-20.GDP growth in current fiscal was
estimated to be in double digits initially, but a severe second wave of pandemic has led to various agencies cut growth projections.RBI too
earlier this month cut India's growth forecast to 9.5 per cent for this fiscal, from 10.5 per cent estimated earlier.While S-P Global
Ratings lowered its growth estimate to 9.5 per cent, another US-based rating agency Moody's has projected a 9.3 per cent growth in the
current fiscal ending March 2022
For 2021 calendar year, Moody's has cut growth estimate sharply to 9.6 per cent.Last month, World Bank slashed its GDP growth forecast for
current fiscal ending March 2022 to 8.3 per cent, from 10.1 per cent estimated in April, saying economic recovery is being hampered by the
devastating second wave of coronavirus infections.Domestic rating agency ICRA too had projected economic growth at 8.5 per cent for this
financial year, while British brokerage firm Barclays had last month cut India's growth forecast to 9.2 per cent.Fitch in its report on
Indian banks further said that regulatory relief measures have postponed underlying asset-quality issues for now, but banks'' medium-term
performance will be dented without a meaningful economic recovery."The operating environment remains challenging for the banks with limited
opportunities for business and revenue growth
Problems could escalate in the event that successive COVID-19 waves and lockdowns prevent a meaningful economic recovery considering that
India's full vaccination rate is still quite low," it said.Fitch expects banks' exposure to stressed MSME and retail borrowers to rise
further with the increasing relief outlay, and is likely to compel banks - especially state-owned ones - to slow regular lending in the
absence of adequate core capital cushions and weak contingency buffers.
