KOLKATA: Rating agency Moodys Investors Services outlook for Indian banks over the next 12-18 months is stable as the pace of bad asset accumulation slowed.
“Our outlook for the Indian banking system is stable, underpinned by healthy economic growth, and weak but stabilising asset quality,” Moodys vice-president and senior credit officer, Srikanth Vadlamani, said.
The global rating firm projected Indias real GDP to grow 7.2 per cent in the year ending March 2019 and 7.4 per cent in the following year, driven by investment growth and strong consumption. “Asset quality will be stable (but weak) as cleanup of legacy problem loans nears completion and corporate health improves. Banks have recognised the bulk of legacy problem loans and will start making recoveries from large resolved nonperforming loans,” Moodys said. Banks second quarter performance showed that fresh bad loan creation from corporate books shrunk but retail and agriculture sectors emerged as stress points.
The rating firm, however, predicted improvement in banks profitability but high credit costs would keep it muted.
Banks loan growth in India are largely funded by deposits and liquidity coverage ratios (LCR) of all banks are above 100 per cent.
Moodys said funding and liquidity profiles of public sector banks will remain resilient, notwithstanding their solvency challenges.
“Public sector banks will continue to grapple with weak capitalisation and depend on government capital injections to meet minimum capital requirements,” the rating firm said.
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