Indian banks and non-bank finance firms are well placed to seize opportunities from India’s strong economic prospects through lending growth in sectors like infrastructure, energy transition, manufacturing, small businesses and retail, Moody’s Ratings said on Wednesday.
Moody’s said credit quality of India’s financial system has strengthened over the past 3-4 years due to record-high profitability, low delinquencies and stable domestic oriented funding. Their capitalisation has also improved with healthy internal accruals and capital raised from buoyant debt and equity markets, it said.
Moody’s expects 12-14% loan growth over the next 15 months. “System-wide net interest margins will soften selectively as banks reprice maturing deposits at higher rates to reflect previous increases in interest rates,” Moody’s said
“Still, the systemwide return on assets will remain healthy with low loan-loss provisions despite a slight increase from cyclically muted levels, while banks’ capitalisation will remain stable,” it added.
The Reserve Bank of India’s initiatives to pre-emptively manage credit growth in high-risk segments such as unsecured loans, along with tighter scrutiny of areas such as customer protection, risk management, cyber security and IT infrastructure, will enhance financial stability, Moody’s said.
“For India’s financial institutions, leadership in technology adoption as well as their risk management, governance, customers’ experience and balance-sheet buffers will separate winners from losers over the next 2-3 years,” said Amit Pandey, a Moody’s Vice President and Senior Analyst.
Meanwhile, ICRA, an affiliate of Moody’s in India, said the extent of growth of systemic liquidity and deposit in India will continue to remain a key driver for credit growth for banks amid strong demand for credit.
ICRA expects the banking sector’s performance to remain strong with healthy profitability primarily driven by strong loan growth and a favourable credit environment.
