RBI relief will only postpone financial stress from India's Covid surge: Fitch

Nonetheless, indicators show that activity dropped in April-May, which is likely to delay the country’s recovery, and the number of newly recorded cases remains extremely high. There is a risk that disruption could persist longer and spread further than our baseline case assumes, particularly if lockdowns are introduced in more regions, or nationwide.

"We anticipate that the RBI may introduce additional measures to support the financial sector if indications of economic stress mount, such as credit guarantee schemes or a blanket moratorium like the one that ran from March-August 2020," Fitch said.

The agency, in April 2021, had argued that the surge in Covid-19 cases could add to headwinds facing India’s banks and non-bank financial institutions if it led to a resurgence in asset quality pressures. The latest data suggest that this risk is mounting.

Among the RBI’s measures announced on May 6, the reintroduction of a restructuring scheme for individuals, small businesses and MSMEs (micro, small and medium-sized enterprises) may be significant for FIs. It covers those which have not previously taken up restructuring. It also allows flexibility to extend the period of moratorium and/or the residual tenor by up to two years for previously restructured amounts.