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ICRA has revised its forecast for India's GDP growth downward to 10-10.5% for FY22 now from the earlier projection of 10-11%

Ratings agency ICRA has cautioned that the continuing resurgence in Covid-19 cases and the increasing localised restrictions can dampen the pace of recovery for the Indian corporate sector as it has begun to the sequential momentum in many sectors.

ICRA has revised its forecast for India’s GDP growth downward to 10-10.5% for FY22 now from the earlier projection of 10-11%.

Talking about the vaccination drive and if that may help stem the negative impact, Ramnath Krishnan, President Ratings, ICRA  said, “While the vaccination drive has commenced, the pace of the actual roll-out of the Covid-19 vaccines to the wider adult population, introduction of additional vaccines in the Indian market, their efficacy against different variants, and the duration for which the vaccines provide enhanced immunity will also impact sentiment and growth, going forward.”

As an the rating agency has also said that new restrictions and  risk aversion among lenders will lead to subdued credit growth at 7.3-8.3% for banks for FY22.

Impact of second wave

Karthik Srinivasan, Senior Vice President & Group Head, ICRA, spoke to Money9 discussing the impact of the second wave on the financial sector, saying, “Expect bank’s credit growth to be very muted in Q1FY22. Banks are sitting on excess liquidity which will impact the margins. An upward bias will be seen on credit costs and NPAs in Q1. The relief package provided under Covid-19, was a fairly sizable number of about Rs 30,000 crore, had to get cleared by March 31. If these accounts were not serviced until March 31, then we could see NPAs spiking further.”

Srinivasan further said that while the clamour for a moratorium on loan repayment and reintroduction of restructuring could arise as the severity of the lockdown was increasing, however it was difficult to second guess the RBI.

On the impact on further sectors of the economy, ICRA highlighted that six sectors, namely, aviation; hotels, restaurants and tourism; media and entertainment-exhibitors; microfinance institutions; real estate; and retail, will be at high risk from the second pandemic wave, although lower than in 2020. ICRA also believes that second wave is likely to reverse the trend in auto fuel demand recovery.

However, K Ravichandran, Deputy Chief Ratings Officer, ICRA Ltd said, “Credit pressures for some entities in the high-risk sectors this time around could possibly be higher than the previous year, given the prolonged stress faced by these sectors with no visibility of return to normalcy, and the likelihood of limited fiscal or policy support in the absence of force majeure conditions like last time.”