That the banks will also be badly hit by the coronavirus disruption is not something anyone can dispute. The rating agency, ICRA has issued a statement that the asset quality of the banks and their risk taking could be impacted as loan collections take a hit, as per a report in the Economic Times.
Most banks in India have had to go through a tough time with high levels of NPA (non-performing assets) and just when they appeared to be getting out of their difficulties, the coronavirus pandemic and the complete lockdown are here. This will definitely have an impact on the ability of the small and medium enterprises in keeping their finances intact and complying with the payment of interest on their advances from the banks and in the repayment of their loans. This means the banks will again be staring at a bleak situation. The MSMEs will want more funds to meet their statutory requirements like payment of wages and electricity dues etc. without any inward remittances since the production is halted and despatches suspended.
On the other hand, the credit offtake will also be severely affected. If there are job losses, the banks can be hit through that as well, since personal banking will have its own dynamics, on depositing and loan repayments behaviour.
ICRA feels all these will collectively impact the asset quality of the banks and their risk-taking ability. There are questions being raised about the merger of banks which is expected to be completed by March 31. So far, there have been no announcements from the government or the RBI on this date being extended. Though the bank branches are functioning, the lockdown would have meant no meetings etc. and that can delay the various activities towards the merger process.
The Indian banking system will have to review itself one more time after the COVID-19 threat blows over and things return to a semblance of normality.