Indian banking system now stable from negative

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Moody’s Investors Service expects India’s economy to continue to recover over the next 12-18 months, with 9.3% GDP growth in the fiscal year ending March 2022

Moody’s Corporation revises outlook for Indian banking system from negative to stable

American business and financial services company, Moody’s Corporation, revised the outlook for the Indian banking system from stable to negative, suggesting that the deterioration in asset quality since the onset of the crisis Coronavirus pandemic was moderate and the improvement in the operating environment will support the quality of the assets.

In its outlook for the banking system, Moody’s Investors Service hopes that the Indian economy will continue to grow. recover over the next 12-18 months with GDP growth 9.3 percent during the year ending March 2022 and 7.9% the following year.

“The resumption of economic activity will lead credit growth, which we expect to be 10 to 13 percent per year. In addition, weak corporate finances and funding constraints for finance companies played a key role. negative factors for banks, but these risks have diminished, ”he said.

Moody’s review of the outlook for the Indian banking system is based on the limited impact that the pandemic has on the deterioration of the quality of banks’ assets despite relatively limited regulatory support to borrowers. The quality of business loans has improved, indicating that banks have accounted for and provisioned all problematic loans inherited from this segment. The quality of personal loans deteriorated, but to a limited extent as there were no large-scale job losses.

“We expect the quality of assets to improve further, leading to lower credit charges, while economic activity is normalizing, ”according to the outlook for Moody’s banking system.

The rating agency said capital ratios have increased at all rated banks over the past year because most have issued new shares. The ability of public sector banks to raise equity in the market is particularly favorable to credit because it reduces their dependence on the government for capital. However, any further capital increase will be limited as the banks will use most of the retained earnings to support a acceleration of loan growth.

The outlook further indicates that bank profitability will improve as loan loss provisions decline. The returns on banks’ assets will rise as the costs of credit fall while the profitability will be stable. If interest rates rise, net interest margins will rise, but this will also cause mark-to-market losses on banks’ large holdings of government securities.

In addition, funding and liquidity will be stable for public and private sector banks. The former enjoy public confidence due to sovereign backing, while the latter have stable credit profiles and strong deposit franchises.

Moody’s said it expects Government support remain strong for rated public sector banks, given their close ties to the government. For private sector banks, Moody’s determines the level of government support taking into account the systemic importance of each bank.

[With Inputs from IANS]

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