The ongoing second wave of COVID-19 will dampen the pace of recovery for corporate India and the contact-intensive sectors will be hit the most, a domestic rating agency said on Wednesday.

However, the impact of the second wave on many sectors is set to be lower than the first because the lockdowns are less widespread and stringent as of now as against the strong nationwide lockdown last year which brought all economic activities to a grinding halt, Icra said.

The country has been reporting alarmingly high cases of infections at over 3 lakh additions and 2,000 fatalities a day, for the last few days. Allegations of under-reporting by some states are also rampant, and the country has had to depend on major world powers for help.

The rating agency said it expects only 4 per cent of its rated portfolio to be severely impacted as a result of the second wave as against 17 per cent in the first wave last year.

“With the fresh uncertainties wrought by the second wave of the pandemic, and the likelihood of additional support measures being limited, the credit ratio is now likely to stall. The pace of recovery would undoubtedly be arrested by the recent surge in COVID-19 infections and associated localised restrictions,” its president Ramnath Krishnan said.

The extent of the impact on ratings would take a cue from the timelines with which this spike plateaus, and then starts receding, he said.

Krishnan said while the vaccination drive has commenced, the pace of the actual rollout of COVID-19 vaccines to the wider adult population, introduction of additional ones in the Indian market, their efficacy against different variants, and the duration for which they provide enhanced immunity will also impact sentiment and growth, going forward.

He said other supportive factors for corporate India include lower global disruptions, absence of pricing pressures on commodity producers, increased digitisation and availability of additional funding lines.

The agency marked aviation, hotels, restaurants and tourism, media and entertainment-exhibitors, microfinance institutions, retail real estate, and retail to be at high risk from the second pandemic wave.

“The entities in the riskier categories are likely to continue to face negative rating pressures compared to the average for the entire ICRA portfolio, as seen in the last fiscal.

“Moreover, the credit pressures for some entities in the high-risk sectors this time around could possibly be higher than the previous year, given the prolonged stress faced by these sectors with no visibility of return to normalcy, and the likelihood of limited fiscal or policy support in the absence of force majeure conditions like last time,” its deputy chief ratings officer K Ravichandran said.

A risk aversion among lenders could pose a challenge to credit growth, the agency said, pegging the credit growth for banks at 7.3-8.3 per cent and for non-banks at 7.0-9.0 for 2021-22.

Asset quality pressures for lenders will rise further and profitability normalisation will stretch beyond 2021-22, it said, noting that the banking system’s solvency profile is better than the pre-COVID levels, affording it a buffer to absorb shocks.

Non banking financial companies were maintaining liquidity to cover more than three-month debt repayments since the beginning of the last fiscal year.

Considering the emerging uncertainties because of COVID-19, which could affect their near-term collections and fresh debt raise, the agency expects the liquidity profile to be maintained with adequate buffers to give comfort to various stakeholders.

The agency had earlier in the day said it expects the Indian GDP to grow by around 10-10.5 per cent in 2021-22, flagging continuation of this wave of infections and an extension of the restrictions imposed as the key downside risks.

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