MUMBAI: Moody’s Investors Service has said that it expects the asset quality of Indian banks to improve in FY23 and their loan books to grow. The rating agency also said that a rise in interest rates will be positive for Indian banks.
According to Moody’s, a gradual increase in domestic interest rates will boost net interest margins of lenders as banks will be able to pass on higher rates to borrowers. Also, their funding costs will increase only marginally as banks have cut the share of high-cost corporate term deposits in total deposits.
“Increasing corporate earnings and easing funding constraints for NBFCs, which are significant borrowers from banks, will support loan growth. We expect growth in bank loans to accelerate to 12-13% in FY23 from 5% in FY21,” Moody’s said in a report.
The report said that asset quality will improve with non-performing loan (NPL) ratios declining because of recoveries or write-offs of legacy problem loans, while the formation of new NPLs will be stable as the economy recovers. “Loan growth will help push NPL ratios down by expanding the overall pool of loans, even though new defaults may arise from loans that have been restructured because of economic disruptions,” Moody’s said.
Moody’s has taken into consideration the Russia-Ukraine conflict and its second-order impact on inflation in India while drawing up its forecasts. It said that capital will not be a problem for banks as their higher profits will offset the increase in capital requirement due to loan growth.
“Capital ratios at public sector banks (PSBs) have improved in the past year, helped by capital infusions from the government. Also, PSBs, as well as their private sector banks, have proactively sought to raise capital from the equity capital market, taking advantage of improvements in profitability to attract investor interest,” Moody’s said.
Moody’s expects India’s economy to continue to recover in 12-18 months, with GDP growing 9.3% in the year ending March 2022 (fiscal 2022) and 8.4% in the following year.
According to Moody’s, a gradual increase in domestic interest rates will boost net interest margins of lenders as banks will be able to pass on higher rates to borrowers. Also, their funding costs will increase only marginally as banks have cut the share of high-cost corporate term deposits in total deposits.
“Increasing corporate earnings and easing funding constraints for NBFCs, which are significant borrowers from banks, will support loan growth. We expect growth in bank loans to accelerate to 12-13% in FY23 from 5% in FY21,” Moody’s said in a report.
The report said that asset quality will improve with non-performing loan (NPL) ratios declining because of recoveries or write-offs of legacy problem loans, while the formation of new NPLs will be stable as the economy recovers. “Loan growth will help push NPL ratios down by expanding the overall pool of loans, even though new defaults may arise from loans that have been restructured because of economic disruptions,” Moody’s said.
Moody’s has taken into consideration the Russia-Ukraine conflict and its second-order impact on inflation in India while drawing up its forecasts. It said that capital will not be a problem for banks as their higher profits will offset the increase in capital requirement due to loan growth.
“Capital ratios at public sector banks (PSBs) have improved in the past year, helped by capital infusions from the government. Also, PSBs, as well as their private sector banks, have proactively sought to raise capital from the equity capital market, taking advantage of improvements in profitability to attract investor interest,” Moody’s said.
Moody’s expects India’s economy to continue to recover in 12-18 months, with GDP growing 9.3% in the year ending March 2022 (fiscal 2022) and 8.4% in the following year.
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