Indian banks may face some headwinds from the Russia-Ukraine crisis, which could lead to higher inflation and some stress for borrowers, S&P Global Ratings analyst Deepali Seth Chhabria said on Wednesday, adding the situation was being closely monitored.
"The outlook on Indian banks continue to remain stable but pockets of stress may emerge due to the conflict as Indian banks already have a huge pile of weak assets and progress on their resolution has been slow," Chhabria told Reuters.
Indian banks' direct exposure to Russia and Ukraine is limited and the direct impact from the conflict is likely to be marginal, Chhabria said.
Gross non-performing assets of Indian banks were at 6.9% of total assets as of September 2021, according to the central bank.
In December, the Reserve Bank of India warned that bad loans at commercial banks in India could rise to between 8.1% and 9.5% by September 2022.
However, Chhabria believes the credit cost for Indian banks, already at its lowest level for the past seven years, could reduce to 1.5% next year and be comparable to emerging markets.
"There are some pockets of stress that we see in retail and the small and medium enterprises sectors given that the recovery so far has been uneven, but with a further pick up in the economy the residual stress should start abating," she said.
S&P expects the Indian economy to grow 9.8% in the current fiscal year, which ends in March, and stay above trend to achieve growth of 7.8% in fiscal 2022/23.
