Amid Strong Loan Growth, Indian Banks’ Credit Profiles Well-placed To Face Global Hurdles
The credit quality of India’s banks and non-bank financial institutions (NBFI) will remain resilient despite a challenging environment for banks globally, said Moody’s on Tuesday.
It added that the country’s strong domestic demand, improving credit conditions for bank borrowers and strengthened solvency and funding of rated Indian financial institutions will support their credit quality at current levels.
Also, Moody’s Indian affiliate Icra expects the banking sector’s performance to remain strong with healthy profitability primarily driven by strong loan growth and a favourable credit environment.
Moody’s said that credit conditions in India have gradually improved, with a significant reduction in the banks' stock of legacy problem loans over the past three years.
Corporates' financial health has also enhanced following a decade of deleveraging. And stress among non-bank financial institutions has abated, it added.
“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 US banking sector," said Alka Anbarasu, Associate Managing Director, Moody’s.
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, added Anbarasu.
Capitalisation at Moody’s rated banks has improved following capital raisings from the equity market as well as capital infusions from the government in the case of public sector banks.
Moody’s expects the average return on tangible assets for rated banks to hold steady at 1.0 to 1.2 per cent over the next two years, which will support asset growth of around 15 per cent while keeping capital at current levels.
Also, Icra said that while the year-on-year (YoY) loan growth is likely to moderate to 11.0 to 11.7 per cent in the fiscal year ending 31 March 2024 (fiscal 2024) from 15.5 per cent in fiscal 2023 with higher interest rates, the incremental credit growth is expected to be Rs 15.0 to 16.0 trillion, which is poised to become the banking sector's second-highest increase on record.
“With deleveraged balance sheets, corporate asset quality remains strong, which, coupled with the stable performance of the retail asset quality, will help to reduce fresh slippages in asset quality at Indian banks,” said Karthik Srinivasan, Senior Vice President and Group Head, Icra.
