Slow pace of vaccination means India could be vulnerable to further waves: Fitch

Fitch Ratings on Monday said the shock to economic activity from the latest wave of Covid19 pandemic will be less severe than the one in 2020 but recovery is likely to be delayed as economic activity dropped in AprilMayThe global rating agency said there are growing indications that the latest wave of Covid19 infections will add to risks among financial institutions FIs and anticipates that the Reserve Bank of India RBI may introduce additional measures to support the financial sector if indications of economic stress mountWe expect the shock to economic activity from the latest wave of the pandemic in India to be less severe than in 2020 even though caseloads and fatalities are much higher Nonetheless indicators show activity dropped in AprilMay which is likely to delay the countrys recovery and the number of newly recorded cases remains extremely high Fitch Ratings said in a reportIt said currently authorities are implementing lockdowns more narrowly and companies and individuals have adjusted behaviour in ways that cushion the effectsThere is a risk that disruption could persist longer and spread further than our baseline case assumes particularly if lockdowns are introduced in more regions or nationwide it addedIndia is facing the worlds worst outbreak of Covid19 cases with more than 3 lakh new daily Covid19 cases being reported for two weeks now and the new cases reached more than 4 lakh new daily cases over the weekendOver 246 lakh people in India have died from the virus infection Public health system is buckling under the weight of surging infections and deaths with several parts of the country reporting shortage of hospital beds medical oxygen medicines and vaccinesIndias slow pace of vaccination means that the country could remain vulnerable to further waves of the pandemic even once the current surge subsides Just 94 per cent of the population had received at least one vaccine dose as of 5 May according to figures from Our World in Data it addedFitch had last month said that the surge in Covid19 cases could add to headwinds facing Indias banks and nonbank financial institutions NBFIs if it led to a resurgence in asset quality pressures The latest data suggest that this risk is mounting the agency saidThere are growing indications that Indias latest wave of Covid19 infections will add to risks among FIs by sapping nearterm momentum from the economic recovery it saidThe measures announced by RBI on May 5 will provide some relief to financial institutions in the next 1224 months but largely at the expense of postponing the recognition and resolution of underlying assetquality problemsAmong the RBIs measures the reintroduction of a restructuring scheme for individuals small businesses and MSMEs micro small and mediumsized enterprises may be significant for financial institutionsIt covers those which have not previously taken up restructuring but also allows flexibility to extend the period of moratorium andor the residual tenor by up to two years for previously restructured amountsThe scheme available endSeptember 2021 may provide borrowers with additional time to resolve repayment stresses and allow financial institutions to spread credit costs over a longer period and the takeup under the last scheme which ran to March 2021 was modestHowever the economy at the time was posting a strong postlockdown recovery Since then we believe risks to small businesses have risen particularly as many would have balance sheets that have weakened since 2020 Meanwhile many individuals face medical bills that will add to strains on their income and savings Fitch addedRBI has also allowed funding by small finance banks to smaller microfinance institutions MFIs for onlending to be classified as prioritysector lending This could support liquidity among those MFIs some of whom have concentrated regional exposures that increase the risk of collection shortfalls as the virus spreads into Indias hinterlands this time aroundWe anticipate that the RBI may introduce additional measures to support the financial sector if indications of economic stress mount such as credit guarantee schemes or a blanket moratorium like the one that ran from MarchAugust 2020 The last moratorium led to sharp drops in collection rates for many NBFIs and any such announcement would be assessed against corresponding industry support to determine its rating impact Fitch addedFitch Ratings last month had said that the resurgence of Covid19 infections may delay Indias economic recovery but wont derail it as it kept the sovereign rating unchanged at BBB with a negative outlookIt projected a 128 per cent recovery in GDP in the fiscal year ending March 2022 FY22 Indian economy is estimated to have contracted 8 per cent in the last fiscal which ended March 2021This story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever