Rising COVID cases may add to asset quality risks of NBFIs: Fitch

Rising COVID cases may add to asset quality risks of NBFIs: Fitch
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New Delhi, Jan 14: Fitch Ratings on Friday said the rising COVID cases may delay recovery in MSME and microfinance lending, and add to asset quality risks of non-banking financial institutions.

Fitch estimates India's economic growth this fiscal ending March 2022 to be at 8.4 percent but said that the deteriorating asset quality for Indian NBFIs in 2022 would stem primarily from MSME and MFI sectors, along with property construction finance.

The Reserve Bank's Financial Stability Report, published in December 2021, noted emerging signs of stress among MSMEs as well as microfinance. Such borrowers generally run on limited cash buffers and capital, and have suffered disproportionately during the pandemic due to their more vulnerable business franchises, the rating agency said.

The surge in COVID-19 cases in India associated with the Omicron variant may delay the recovery in micro, small and medium enterprises (MSMEs) and microfinance lending, adding to asset-quality risks for Indian non-bank financial institutions (NBFIs), Fitch Ratings said in a statement.

India added over 2.64 lakh new COVID cases in the last 24 hours. 5,753 cases of the Omicron variant has been detected in the country so far.

MSME business activities picked up in the second half of 2021, but remain below pre-pandemic levels, but the surge of Omicron cases in January 2022 may disrupt the recovery temporarily.

Fitch expects that the scale of disruption associated with the wave will be modest by comparison with India's initial lockdown in 2020 or the Delta variant wave of 2021.

Nonetheless, there is likely to be some impact from the Omicron surge as local restrictions are re-introduced. This comes at a time when financial buffers have already been eroded for many small borrowers, it said.

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