Indian Banks to maintain asset quality amid economic growth
Moody's said India's domestic economic conditions will strengthen the banking sector, which will maintain asset quality and maintain the NPL ratio at 2-3%. There may be variations between different lenders, but government spending and tax cuts will boost the economy.
Moody's Ratings stated on Tuesday that India's internal economic environment will remain conducive to growth, assisting banks in preserving their asset quality and sustaining a systemic non-performing loan (NPL) ratio of 2-3 percent over the upcoming 12 months.
In its report on the banking sector, Moody's said asset quality will remain intact despite global economic uncertainties. "While trade tensions have increased economic uncertainty globally, India's domestic economic conditions will continue to be supportive of growth," it said. This will bolster the asset quality of banks, although loan performance will continue to vary across product types and among lenders. "
It was stated that the domestic economic environment will remain favorable for banks. Increased government spending on infrastructure, tax reductions for the middle-income bracket to enhance consumption, and monetary policy relaxation will bolster the Indian economy. Additionally, a minimal reliance on goods trade will shield it somewhat from external threats. "This will assist banks in preserving their asset quality," Moody's remarked. We anticipate the overall non-performing loan (NPL) ratio to stay between 2-3 percent over the coming year, compared to 2.5 percent at the close of December 2024.
According to the statement, the quality of bulk loans is expected to remain stable because companies are experiencing strong profitability and low leverage. Bulk loans are a significant portion of the loan portfolios for Indian banks, alongside retail and agricultural loans. Nonetheless, Moody's has forecasted that the quality of unsecured retail loans will continue to be inferior to that of secured loans for the upcoming few quarters.
Growth in some quarters
The rate at which new NPAs are formed for secured retail loans has generally remained low, whereas the rate for unsecured loans has risen over the past few quarters. If this trend continues, the asset quality of small private sector banks will remain inferior compared to that of large private banks and public sector banks.