Context:Ratings agencies have warned that the ongoing nationwide lockdown, sluggish economic growth and the consequent rise in bad loan provisions will exert pressure on the capital adequacy of banks.

More about the news:

  • Rating agencies have said the effect will be more pronounced for public sector banks (PSBs), considering that the government has not announced any plan for a capital infusion for state-owned banks in FY21
  • Deterioration of global economic conditions and India’s 21-day lockdown will weigh on domestic demand and private investment. 
  • Credit supply to the economy will be hampered by volatility in global financial markets and heightened risk aversion among Indian banks and debt market participations.
  • In a current economic situation where equity mobilization is going to be difficult, the rise in NPAs (non-performing assets) and the inability of a lot of lenders to improve on their collections could stretch their solvency.