Indian banks and non-banking financial companies are well-positioned to capitalize on opportunities presented by India’s powerful economic outlook through increased lending in sectors such as infrastructure, energy transition, manufacturing, miniature businesses and retail, Moody’s Ratings said on Wednesday.
According to Moody’s, the credit quality of the Indian financial system has improved over the last 3-4 years thanks to record high yields, low delinquency rates and stable domestic financing. Their capitalization has also improved thanks to well internal accruals and capital raised from buoyant debt and equity markets, he said.
Moody’s expects lending to grow 12-14% over the next 15 months. “System-wide net interest margins will selectively decline as banks reprice maturing deposits at higher rates to reflect past interest rate increases,” Moody’s said
“Still, system-wide return on assets will remain well with low loan loss provisions, despite modest growth from cyclically subdued levels, while bank capitalization will remain stable,” he added.
The Reserve Bank of India’s initiatives to preemptively manage credit growth in high-risk segments such as unsecured lending, along with tighter controls on areas such as customer protection, risk management, cyber security and IT infrastructure, will enhance financial stability, Moody’s said.
“For Indian financial institutions, leadership in technology adoption, as well as risk management, governance, customer experience and balance sheet buffers will separate winners from losers over the next 2-3 years,” said Amit Pandey, Moody’s Vice President and Senior Analyst.
Meanwhile, ICRA, Moody’s subsidiary in India, said the extent of systemic liquidity and deposit growth in India will remain a key driver of credit growth for banks amid powerful credit demand.
ICRA expects the banking sector’s performance to remain powerful and profitability to be well, mainly driven by powerful credit growth and a favorable credit environment.
