Moody’s Investors Service on Thursday said second wave of Covid infections has increased asset risks for Indian banks, but a severe deterioration is unlikely.

It said the second wave of coronavirus infections in India has exacerbated stress among individuals and small businesses that were hit the hardest by the initial outbreak. Still, a number of factors will prevent sharp increases in problem loans, and banks have sufficient buffers to absorb anticipated loan losses.

“A severe deterioration of banks’ asset quality is unlikely despite an expected rise in new loan impairments. This is because government initiatives such as the ECLGS have been effective in providing immediate liquidity for businesses,” Moody’s vice-president and senior credit officer Alka Anbarasu said.