Impact of Corona Virus on Banking Sector

Coronavirus outbreak has not only affected the lives of the masses but has given a clear indication of the economic slowdown followed by the lockdown of 21 days in India. The Global and domestic rating agencies have declared that the COVID-19 pandemic will be a period of slowdown for India and it’s going to throw the economy out of gear.

The percentage of bad loans is likely to rise due to the rise in fluctuating incomes and unemployment countrywide.

Inflation may grow as there is a disruption in the supply chain which in turn will affect the various rates in the Banking sector like Repo rate, reverse repo and Bank rate, etc.

There are a large number of measures taken by RBI to mitigate the losses made by lockdown on businesses. The RBI allowed banks to hold the EMI installments paid by customers for three months and cut the interest rates. RBI is working parallelly along with the government to rescue the slowing economy due to the Coronavirus outbreak. RBI has also reduced the repo rate to 4.4 percent. Also, the CRR(Cash Reserve Ratio) has been reduced by 100 basis points. This substantial reduction of CRR will help the banks to lower the lending rates and help the inflow of money.

The Financial Stability Report said that the gross NPA of the public and private sector banks may rise from 12.7 percent to 13.5 percent and from 3.9 percent to 5.4 percent respectively.

The rating agency Fitch has also shown the worries about the Indian banking sector due to prevailing bad loans and upcoming weak businesses.

RBI Governor warned the banks to prepare themselves against the Corporate Balance Sheets which are likely to get affected and stress would be increased.

The IMF has already reduced the global growth forecast from 2.9% in 2019 to 3.3% in 2020. Banks should prepare themselves to face the repercussions. The domestic rating agency CRISIL has slashed its base case GDP growth forecast for India in the financial year 2021 from 5.7% to 5.2%. It also mentioned that there are further risks if the outbreak is not controlled as it directly impacts investment and domestic consumption.

In the immediate context, we can't predict what's going to happen in the upcoming three months, but we can't ignore the already ailing economy of the nation. The RBI and the Government are taking stringent measures to ensure the safety of the daily wage workers and the poor masses so that they can deal with this havoc.

What we can do as a responsible citizen right now is to help the government by following their orders and remain at home until everything comes back to normalcy.