Moody’s Ratings on Tuesday said the Indian banking sector will be able to broadly preserve asset quality despite trade tensions posing risks to the global economy.
India’s domestic economic conditions will continue to be supportive of growth, which will help banks preserve their asset quality and maintain a systemwide nonperforming loan (NPL) ratio of 2-3% over the next 12 months, it added.
In its report on the banking sector, Moody’s said asset quality will hold up despite global economic uncertainty.
It said domestic economic conditions will remain supportive of banks. The government capital expenditure, tax cuts for middle-class income groups to boost consumption, and monetary easing will underpin the Indian economy. Also, a low level of dependence on goods trade will help shield it from external risks to some extent.
“This will help banks preserve their asset quality. We expect the systemwide nonperforming loan (NPL) ratio to remain at 2-3 per cent in the next 12 months, compared to 2.5 per cent at the end of December 2024,” Moody’s said.
Moody’s projected that the quality of unsecured retail loans will remain weaker than that of secured ones for at least the next few quarters.
The government’s capital expenditure, tax cuts for middle-income groups to boost consumption, and monetary easing will underpin the Indian economy.
Also, a low level of dependence on goods trade will help shield it from external risks to some extent. This will help banks preserve their asset quality, it added.
Wholesale loans will continue to perform well as companies maintain good profitability and low levels of leverage, the report said.
Wholesale loans are a key part of Indian banks’ loan books, along with retail and agriculture loans. The quality of unsecured retail loans will remain weaker than that of secured ones for at least the next few quarters.