Mumbai: Rating agency Moody’s Investors Service has upgradedits outlook on India’s banking system. On Monday it announced that India’s banking system is “stable”, as compared to its “negative rating of November 2011. And this surprisingly came after another of its divisions warned PM Modi that he ought to keep his party members “in check or risk losing domestic and global credibility.” Earlier in April it had rated India’s soverign outlook as positve while retaining its rating at “Baaa3”.
Indian banks, particularly state-run banks, have been saddled with bad loans estimated at nearly $50 billion as the economy slowed sharply in the last three years.
But recent earnings reports, including from top private sector lender ICICI Bank, suggested asset quality may be stabilising.
However the agency warned that any recovery in asset quality would be gradual given the high debt levels in Indian companies. The World Bank Doing Business Report 2016, that was recently released, also noted a 4 point increase in India’s position relative to other countries on the overall climate for business from last year.
“The stable outlook on India’s banking system over the next 12-18 months reflects our expectation that the banks’ gradually improving operating environment will result in a slower pace of additions to problem loans, leading to more stable impaired loan ratios,” Moody’s said in the statement.
Moody’s said it expected India’s economy to grow around around 7.5 percent in 2015 and 2016 each, supported by low inflation and gradual implementation of structural reforms.