Domestic economic conditions to support growth, help preserve banks’ asset quality: Moody’s

Moody’s Rankings on Tuesday mentioned India’s home financial situations will proceed to be supportive for progress, which can assist banks protect their asset high quality and keep systemwide nonperforming mortgage (NPL) ratio 2-3 per cent in over subsequent 12 months.

In its report on the banking sector, Moody’s mentioned asset high quality will maintain up regardless of world financial uncertainty.

“Whereas commerce tensions have heightened financial uncertainty globally, India’s home financial situations will proceed to be supportive for progress. That may underpin banks’ asset high quality, though the divergence of mortgage efficiency will stay throughout completely different product varieties and lenders,” it mentioned.

It mentioned home financial situations will stay supportive for banks. The federal government capital expenditure, tax cuts for middle-class earnings teams to spice up consumption and financial easing will underpin the Indian financial system. Additionally, a low-level of dependency on items commerce will defend it from exterior dangers to an extent.

“This may assist banks protect their asset high quality. We count on the systemwide nonperforming mortgage (NPL) ratio to stay at 2-3 per cent within the subsequent 12 months, in comparison with 2.5 per cent on the finish of December 2024,” Moody’s mentioned.

It mentioned the standard of wholesale loans will stay wholesome, as corporations keep good profitability and low ranges of leverage. Wholesale loans are a key a part of Indian banks’ mortgage books, together with retail and agriculture loans. Nevertheless, Moody’s projected the standard of unsecured retail loans will stay weaker than that of secured ones at the very least for the following few quarters.

New NPL formation charges for secured retail loans have broadly stayed low, whereas these for unsecured loans have risen previously few quarters. As this pattern persists, small personal sector banks will proceed to have weaker asset high quality, than giant personal banks and public sector banks,” it added.