COVID-19 to give stress assets to banks

The outbreak of pandemic COVID-19 has resulted in the lockdown-like situation all over the world. India too has not been an exception of this and almost 75 districts across the country have been put under a lockdown, where COVID-19 cases have been reported. Further on Sunday, the entire country observed voluntary one-day ‘Janta Curfew’.

COVID-19 is not only a threat to human lives but it has also caused a massive damage to the economy all over the world as businesses have to shut down the chain of transmission. The most-affected industry due to this outbreak is airlines. Most of the countries have put a restriction on airlines to arrive or depart to foreign countries or even in some cases, to domestic destinations. Many airlines are announcing salary cuts (such as Indigo) for surviving in this situation. However, lower crude oil prices have given some breathing time to the airline industry. Further, the retail industry, such as Future Retail, Trent, Dmart, etc has been affected and stocks of these industries have been devastated. Along with this, entertainment industry players like Inox and PVR have also been affected.

With such a nation-wide lockdown, the trade and commerce activities have also come to a standstill, causing stress to the banks’ asset and post this pandemic situation, the banks are likely to witness more stress in the coming days. The government needs to give some financial relief to the affected sectors. The retail industry is likely to be a result of stress for the banking industry as there is a high probability of default by the retail loan borrowers, as these industries cannot survive for a long time without any inflows.

The daily wagers and many self-employed people as well as contract workers are the most vulnerable and this lockdown is set to cause a massive loss to them.  

If we look at today’s worst-performing sector then, it is Bank Nifty, which is down by almost 15 per cent. Besides, lower crude oil prices are likely to give cushion to many industries in terms of profitability, as it is a key raw material for many industries, however, demand disruption is going to put pressure on the top-line.