Recovery of shadow banks in doubt as lenders take a hit from Covid-19

Signs of a recovery for India’s troubled shadow banks have taken a step backward as concerns reemerged about the true impact of the pandemic on the lenders.

Average spreads on the lenders’ AAA rated five-year bonds rose for the first time in four months in September. Of three other gauges tracking shadow bank sector health compiled by Bloomberg, two including banking system liquidity and outstanding debt weakened, while a share performance index stayed put.

The developments are a setback after months of improvement following unprecedented central bank stimulus and targeted support for the industry, as authorities try to cushion