For the current financial year, the rating agency expects banks' credit to rise 5-6% on a yearly basis. ICRA said that it expects serious impact on cash-flows of individuals as well as corporate entities because of slowdown in business and economic activity due to the countrywide lockdown, and possibility that the lockdown may extend for a few weeks. "ICRA expects a sharp downturn in various manufacturing and services sectors, particularly those catering to domestic discretionary activities, such as travel, tourism and recreation, labour intensive sectors such construction and transport, as well as exports from March 2020 onwards," the rating agency said.
Depending on the period of lockdown in various districts, ICRA expect India's GDP to grow at 4.7-5.2% in the next financial year. Further, the coronavirus is likely to impact banks' asset quality as businesses comply with lockdown orders, which can lead to cash flow mismatches and eventually a default, and as repayment cycle gets hit as individuals follow social distancing norms. Further, the retail portfolio of banks too is likely to see some deterioration as the sector is vulnerable to macro-economic developments, ICRA said.
"Other retail asset segments such as auto loans, consumer durables and home loans to be impacted as personal connect is higher in such loans. Lower economic activity to compress freight volumes, and impact asset quality of CV (commercial vehicle) financers, as well as CV OEM (original equipment manufacturers)," the domestic rating agency said. However, if the Reserve Bank of India allows a moratorium on repayment of loans, the asset quality of lenders is likely to get some support, ICRA said.
