Indian banks' asset quality seen stable amid global uncertainty, Moody's Ratings says
June 3 (Reuters) - Indian banks are expected to maintain stable asset quality over the next 12 months despite mounting global economic uncertainties driven by trade tensions, Moody's Ratings said on Tuesday, citing supportive domestic macroeconomic conditions.
Government capital expenditure, tax relief for middle-income households, and monetary policy easing are expected to bolster consumption and investment, helping lenders manage asset quality. India's relatively low reliance on global goods trade will also insulate it from external risks, Moody's added.
The Reserve Bank of India's next policy decision is due on Friday where the central bank is expected to cut the repo rate by 25 basis points for a third consecutive time.
The rating agency forecasts the systemwide non-performing loan (NPL) ratio to remain between 2% and 3% over the next year, broadly unchanged from 2.5% at the end of December 2024.
Performance of wholesale loans, or loans given to organisations, is projected to stay healthy for Indian lenders, as companies maintain good profitability and low leverage levels.
However, the outlook for unsecured retail loans remains weak. Moody's warned that new NPL formation in this segment has increased over recent quarters, in contrast to the relatively steady performance of secured retail loans.
"Smaller private sector banks are more exposed to unsecured lending and will continue to face greater asset quality pressures compared to their larger private and public sector counterparts,' Moody's said.
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