US tariff moves to have limited impact on Indian banks: Report
India's diversified and low exports will ensure banks in the country have a limited impact of the US tariff moves, a global rating agency said on Wednesday.
Moody's Investors Service
said its outlook on the Indian banking system remains stable on favourable operating environment driven by government capital expenditure, tax cuts for middle-income groups, and monetary easing to boost consumption.
"India's relatively low and more diversified exports to the US are expected to limit the credit impact on its banks," the agency noted.
The agency, however, said that banks' asset quality is likely to "deteriorate moderately" after substantial improvements in recent years, due to an increase in stress in unsecured retail loans, microfinance loans, and small business loans.
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Banks' profitability will get impacted when compared with FY25, it said, adding that the impact will be limited as the declines in net interest margins (NIMs) are likely to be gradual.
Banks will maintain strong capitalisation, supported by internal capital generation that keeps pace with asset growth and easy access to a deep domestic equity market.
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Meanwhile, the agency's unit Icra Ratings said the non-bank lenders' capital position and healthy earnings performance will help them absorb headwinds on loan quality and regulatory developments.
The domestic rating agency estimated them to grow by 16-18 per cent in FY26, slower than the rate seen in previous few fiscals.
Spillover of stress into secured asset segment remains a key monitorable, it added.
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