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Informist, Tuesday, Jun. 3, 2025

 

--Moody's: Indian bks' asset quality to hold up despite global econ worries 

--Moody's: Expect RBI's draft gold loan norms to slow growth of gold loans 

--Moody's: Indian bks' unsecured retail loan quality to remain weak 

 

MUMBAI – Despite heightened trade tensions globally, the asset quality of Indian banks is expected to hold up due to supportive domestic economic conditions, Moody's research said in a note on Tuesday. Asset quality of the Indian banks will hold its own even as loan growth may look different for different product types and different lenders, it said in the note.

 

The rating agency said it expects the non-performing loan ratio of Indian banks to remain within the 2-3?nd over the next few quarters. "Government capital expenditure, tax cuts for middle-class income groups to boost consumption and monetary easing will underpin the Indian economy. Also, a low level of dependency on goods trade will shield it from external risks to an extent," it said.

 

Moody's said the growth in bank loans may look different for different sectors given the Reserve Bank of India's steps to curb excessive growth in loans to non-bank finance companies and the draft measures released for gold loans. Despite the RBI's decision to reverse the hike in risk weight on loans by banks to non-bank finance companies, the rating agency expects loan to the sector to grow in line with overall credit growth in the banking sector. Moody's expects system-wide loan growth to be in the 11-13% range in the current financial year ending March.

 

Loans against gold are expected to witness a slowdown going ahead, weighed down by the draft guidelines. The central bank proposes to maintain a 75?iling for loan-to-value ratios throughout the tenure of a loan, for both principal and interest for consumption-based loans and all gold loans originated by non-bank lenders. Additionally, a lender can extend renewals or top ups of bullet repayment loans only after full repayment of accrued interest, the RBI said.

 

Wholesale loans, which are a key part of Indian banks' loan book, along with retail loans and agriculture loans, are expected to remain healthy as companies will maintain good profitability and low levels of leverage, Moody's said. However, small businesses, which accounted for 46% of total exports in 2023-24 (Apr-Mar), may face challenges if trade tensions escalate, the rating agency said. This may raise asset risks for banks as loans to this group of businesses has been growing faster than those to large corporates in past few years. it said.

 

In the case of retail loans, Moody's sees the trend of rising non-performing loans in the unsecured segment continuing in the current financial year. "As for retail loans, asset quality will continue to be divergent between secured products and unsecured ones or secured products with low post-default recovery rates. New NPL formation rates for the former have broadly stayed low, while those for the latter have risen in the past few quarters. This trend will continue for now," it said.

 

Impairments of unsecured retail loans, including microfinance loans for low-income households, will remain at a high level in the next few quarters, Moody's said. "Unsecured loans have grown rapidly in recent years amid fierce competition among lenders looking to capitalize on their high yields," it said. Some non-bank lenders focussed on the microfinance segment with significant credit losses may need to raise capital to maintain solvency, Moody's said.  End

 

Reported by Kabir Sharma

Edited by Ashish Shirke

 

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