Indian bks face high credit risk from prolonged West Asia war, says Moody's
This story was originally published at 19:07 IST on 27 May 2026
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--Moody's: Indian banks face high credit risk amid prolonged West Asia war
--Moody's: Indian bks more exposed to W Asia war than others in Asia-Pacific
--Moody's:Indian bks exposed to vulnerable segments, which may increase NPAs
--Moody's: Sustained high fuel costs to add inflationary pressure in India
--Moody's: Indian bks may see higher stress in households loan segment
--Moody's: NBFCs may see worse asset quality in unsecured retail loans
--Moody's: Indian banks' farm exposure should see only modest deterioration
--Moody's: Indian banks have good capital, provisioning buffers
--Moody's: Indian banks well positioned to absorb credit losses
--Moody's:RBI to face pressure to hike rates to control inflation, rupee fall
--Moody's: Higher repo rate to amplify risks to Indian banks' credit quality
NEW DELHI – Indian banks face high credit risk from a prolonged war in West Asia, given the conflict-driven pressure on inflation and interest rates, Moody's Ratings said. Despite increasing pressures, Indian banks have good capital and provisioning buffers, making them well-positioned to absorb credit losses without threatening solvency, the rating agency said.
"Indian banks are among the more exposed in the (Asia-Pacific) region, given the economy's high dependence on energy imports from the Middle East and the consequent pressure on inflation, interest rates and borrower cash flows," the rating agency said in a report. "Higher fuel costs will strain consumers' budgets and raise debt-servicing burdens for households and SMEs (small and medium enterprises), translating into increased — though gradual — credit stress in these loan portfolios."
Non-banking financial companies face particular pressure from the conflict, given their large exposure to unsecured retail loans, where asset quality deterioration is expected, Moody's said.
"Indian banks' sizeable agriculture exposure should see only modest deterioration, as adequate fertiliser stockpiles limit import cost shocks, though higher diesel prices will still pressure farm cash flows," Moody's said.
The US war on Iran, which began on Feb. 28 has pushed up energy prices and disrupted supplies from the key Strait of Hormuz passageway. Higher crude oil prices are translating into retail prices, with Indian oil retailers raising pump prices of petrol and diesel by over INR 7 per litre this month.
Wholesale inflation has already risen sharply in India and CPI inflation is expected to pick up as well starting May. The Reserve Bank of India faces pressures to raise interest rates to contain inflation and a fall in the rupee, Moody's said. A rise in the repo rate, currently at 5.25%, will raise banks' funding costs and amplify risks to credit quality, the rating agency added. End
Reported by Shubham Rana
Edited by Akul Nishant Akhoury
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