Moody’s upgrades banking system outlook to stable

New Delhi, October 19

Moody’s Investors Service on Tuesday raised the outlook for the Indian banking system to ‘stable’ from ‘negative’, citing moderate deterioration of asset quality since the onset of the pandemic and likely pick-up in credit growth with economic recovery.

Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3% in the fiscal year ending March 2022 and 7.9% in the following year.

“The pick-up in economic activity will drive credit growth, which we expect to be 10-13% annually. Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded,” Moody’s said in its ‘Banking system outlook - India’ report.

The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. “We have revised the outlook for the Indian banking system to stable from negative. The deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality. Declining credit costs as a result of improving asset quality will lead to improvements in profitability,” Moody’s said. — PTI

Key negative factors recede

• Moody’s expects India’s economy to grow 9.3% in the current fiscal and 7.9% in the following year
• It said the quality of corporate loans has improved, indicating that banks have recognised and provisioned for all legacy problem loans in this segment
• It said weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded