IGI Logo

Fitch Ratings has said mounting repayment pressure for some borrowers, particularly micro, small and medium-sized enterprises, amid India's interest rate hikes will test banks' loan underwriting quality. However, it stated asset-quality risks from higher rates should generally be moderate for most banks.

It underlined that higher rates will also affect securities valuations and could make it harder for banks to raise fresh capital, particularly at state banks, although wider net interest margins (NIM) will have offsetting positive credit effects.

It mentioned ‘We expect rates to rise further, reaching 5.90 per cent by end-2022 and 6.15 per cent by end-2023, then remaining at this level through 2024’.it added banks have been quick to pass on higher rates through loan portfolios, which are mainly floating in nature but have been slower in raising deposit rates. Moreover, it said this trend should support higher NIM, but the lack of competition for deposits may point to relatively muted demand for new credit. The Reserve Bank of India (RBI) raised policy interest rates by 50 bps to 4.90 per cent in June.