Debt recast may reduce transparency, hinder capital raising: Fitch

Private investors may be reluctant to participate in sale of stakes in state-owned lenders until impact of pandemic on their balance sheets is clear, agency says

Global rating agency Fitch said today that the debt restructuring move in India, while giving room for building buffers, may reduce transparency about asset quality and hinder raising of capital.

The Reserve Bank of India’s policy to allow debt restructuring could open a window for banks to build capital buffers while putting off full recognition of the coronavirus pandemic’s impact on loan portfolios. But, it is reminiscent of a strategy adopted over 2010-2016 that delayed and exacerbated problems for the banks, Fitch Ratings.

India’s 2010-2016 experience with permitting broad-based debt restructuring was characterised by poor implementation and weak monitoring.