This report does not constitute a rating action.
HONG KONG (S&P Global Ratings) April 28, 2021--India's escalating second wave of COVID-19 infections is serious. In addition to the substantial loss of life and significant humanitarian concerns, S&P Global Ratings believes the outbreak poses downside risks to GDP and heightens the possibility of business disruptions. The negative credit spillovers to our rated portfolio remains limited, but the situation is fluid. The high absolute number of infections in India also presents a significant contagion risk to other geographies.
ECONOMY
The COVID-19 second wave brings uncertainty. As daily infection cases exceed 300,000, the outbreak is putting severe pressure on the country's health infrastructure. A drawn-out COVID-19 outbreak will impede India's economic recovery. This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to reimpose broad containment measures. The country already faces a permanent loss of output versus its pre-pandemic path, suggesting a long-term production deficit equivalent to about 10% of GDP.
SOVEREIGN
Strong economic growth will be critical to sustain the government's aggressive fiscal stance put forth within India's latest national budget, and to stabilize its high debt stock relative to GDP. The pace and scale of the post-crisis recovery will have important implications for the sovereign credit rating.
CORPORATES
Various levels of Indian government have enacted localized COVID-19 containment measures. The lockdowns disrupt daily work and related economic behavior, which could drag out the recovery of revenue and earnings of some corporates sectors. This is especially true for sectors highly sensitive to mobility, such as consumer retail and airports.
BANKS
Banks continue to face a high level of systemic risk. Lenders' asset quality remains strained and credit losses will continue to hold back profitability during fiscal 2021/2022. India's speedy economic recovery right up until March 2021 has partly alleviated nonperforming loan stresses. Government measures have helped, including emergency credit guarantees for small to midsize enterprises. Also, under the state's partial guarantee program, the government promises to cover up to 20% of the first loss incurred by banks on certain bonds issued by finance companies.
ASIA-PACIFIC
Asia-Pacific is susceptible to contagion from the highly infectious COVID-19 variants present in India, given the low ratios of vaccination in the region. In the event some vaccines having limited efficacy against newer virus mutations, the countries may be exposed to further waves of COVID-19 outbreaks.
The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
| Primary Author: | Eunice Tan, Hong Kong + 852 2533 3553; eunice.tan@spglobal.com |
| Shaun Roache, Singapore (65) 6597-6137; shaun.roache@spglobal.com | |
| Andrew Wood, Singapore + 65 6239 6315; andrew.wood@spglobal.com | |
| Geeta Chugh, Mumbai + 912233421910; geeta.chugh@spglobal.com | |
| Neel Gopalakrishnan, Singapore + 65-6239-6385; neel.gopalakrishnan@spglobal.com | |
| Abhishek Dangra, FRM, Singapore + 65 6216 1121; abhishek.dangra@spglobal.com | |
| Secondary Author: | Vishrut Rana, Singapore + 65 6216 1008; vishrut.rana@spglobal.com |
| Deepali V Seth Chhabria, Mumbai + 912233424186; deepali.seth@spglobal.com | |
| Terry E Chan, CFA, Melbourne + 61 3 9631 2174; terry.chan@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.