Indian banks are expected to maintain stable asset quality over the next 12 months despite rising global economic uncertainties driven by trade tensions, Moody’s Ratings said on Tuesday, citing supportive domestic macroeconomic conditions.
Government capital expenditure, tax relief for middle-income households, and monetary policy easing are anticipated to boost consumption and investment, helping lenders manage asset quality. India’s limited dependence on global goods trade will also shield it from external shocks, Moody’s noted.
The Reserve Bank of India’s next policy decision is due on Friday, with markets expecting a 25 basis point cut to the repo rate—marking the third consecutive reduction.
Moody’s forecasts that the systemwide non-performing loan (NPL) ratio will remain between 2% and 3% over the next year, staying close to the 2.5% level recorded at the end of December 2024.
The performance of wholesale loans, or loans issued to organisations, is expected to remain robust as companies continue to show solid profitability and maintain low debt levels.
However, the outlook for unsecured retail loans is less optimistic. Moody’s flagged a recent rise in new NPL formation in this segment, diverging from the steady performance of secured retail loans.
“Smaller private sector banks are more exposed to unsecured lending and will continue to face greater asset quality pressures compared to their larger private and public sector counterparts,” the agency added.
