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Moody's Raises India's Banking Outlook To Stable; Economy Recovery To Drive Credit Growth

According to Moody's, the quality of corporate loans has enhanced, betokening that banks have recognised and provisioned for all legacy problem loans.

Moody's

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On Tuesday, Moody's Investors Service raised the outlook for the Indian banking system from 'negative' to 'stable' referring moderate deterioration of asset quality since the onset of the novel coronavirus pandemic and likely pick-up in credit growth with economic recovery.

The bond credit rating agency expects the Indian economy to advance to recover in the next 12-18  months, with GDP (Gross Domestic Product) growing 9.3% in the financial year ending March 2022 and 7.9% in the following year. 

"The pick-up in economic activity will drive credit growth, which we expect to be 10-13 per cent annually. Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded," Moody's said in its 'Banking system outlook - India' report.

According to Moody's, the quality of corporate loans has enhanced, betokening that banks have recognised and provisioned for all legacy problem loans in this segment. The state of retail loans has declined, but to a restricted degree because large-scale job losses have not occurred. 

"We have revised the outlook for the Indian banking system to stable from negative. The deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality. Declining credit costs as a result of improving asset quality will lead to improvements in profitability," Moody's said.

The rating agency assumes that the government will provide a very high level of support for rated public sector banks, given their strong links to the government. 

Moody's & IMF give thumbs up to Indian economy

Earlier this month, Moody's raised India's sovereign rating outlook to 'stable' from 'negative'. "Moody's Investors Service has today changed the outlook on the Government of India's ratings to stable from negative and affirmed the country's foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at Baa3," it said in a statement.

Recently, International Monetary Fund (IMF) forecasted India to be the fastest-growing economy in the world at 8.5% growth in fiscal 2022. According to the IMF's World Economic Outlook, the world is expected to grow at 5.9% in FY2021 and 4.9% in FY 2022. The projections put India foremost of global powers.

(With PTI Inputs)

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