Moody’s changes the outlook for the banking system to “stable”; Ecological stimulus to stimulate credit growth

Moody’s Investors Service on Tuesday raised the outlook for the Indian banking system from “stable” to “negative”, citing a moderate deterioration in asset quality since the start of the pandemic and a likely resumption of credit growth with the economic recovery.

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

Moody’s raises India’s outlook from “negative” to “stable”

“The resumption of economic activity will stimulate credit growth, which we expect to be 10 to 13% per year. Weak corporate finances and funding constraints for finance companies have been key negative factors for banks, but these risks have diminished, ”Moody’s said in its“ Banking System Outlook – India ”report.

The quality of business loans has improved, indicating that banks have recognized and provisioned all legacy problem loans in this segment. The quality of personal loans deteriorated, but to a limited extent as there were no large-scale job losses.

“We have revised the outlook for the Indian banking system from stable to negative. The deterioration in asset quality since the onset of the coronavirus pandemic has been moderate and an improving operating environment will support asset quality. Lower credit costs resulting from improved asset quality will lead to improved profitability, ”Moody’s said.

The rating agency assumes that the government will provide a very high level of support to rated public sector banks, given their close ties to the government.

Earlier this month, Moody’s raised the outlook for India’s sovereign rating from “negative” to “stable”. It also confirmed the sovereign rating at “Baa3”.