Indian banks’ credit profiles resilient amid global banking sector stress: Moody's

Credit rating agency Moody’s in its latest report said Indian banks and NBFC are resilient despite a challenging environment for banks globally.

The credit quality of Indian banks and Non-Bank Financial Corporations (NBFCs) will remain resilient despite a challenging environment for banks globally, according to Moody's which said they are well-placed to weather global banking sector stress.

The global rating and research agency said strong domestic demand in India, improving credit conditions for bank borrowers, and strengthened solvency and funding of Indian financial institutions will support their credit quality. Also, Moody's Indian affiliate Investment Information and Credit Rating Agency (ICRA) expects the banking sector's performance to remain strong with healthy profitability — primarily driven by strong loan growth and a favourable credit environment.

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Moody's said that credit conditions in India have gradually improved, with a significant reduction in the banks' legacy problem in loans over the past three years. Stress among NBFCs in India has abated too, Moody's noted.

"Banks globally are facing liquidity pressures amid tighter monetary policy, outflows of excess liquidity built up during the coronavirus pandemic into more profitable investments and increased risk aversion among investors because of stress in the U.S. banking sector," said Alka Anbarasu, a Moody's Associate Managing Director.

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“Indian banks, however, have strong domestic funding franchises and ample liquidity to support growth in their loans in line with India’s strong economic conditions,” Ms. Anbarasu added. Moody’s guidance assumes important at a time when there has been instability in some banks in the U.S.