Increase in strained loans of Indian bank slower due to government measures: Moody’s

Global rating agency Moody’s said the Indian government’s support measures for bank borrowers have dampened non-performing loans (NPLs) growth and averted the risk of a sharp deterioration in asset quality.

“Adequate domestic liquidity, loose monetary policy, moratoriums on loan repayments and government-guaranteed loans to small businesses have supported the quality of Indian banks’ assets. As a result, restructured loans have not increased as much as we expected at the start of the pandemic, ”said Alka Anbarasu, Moody’s Vice President and Senior Credit Officer.

The January 2021 financial stability report had estimated that the gross non-performing assets of banks in India could rise from 7.5 percent in September 2020 to 13.5 percent by September 2021 in the baseline scenario. In a severe stress scenario, the rate can increase to 14.8 percent.

Moody’s said India’s economic recovery will help borrowers after the end of government bailout measures that have slowed the growth of private bank NPAs.

Banks can absorb unexpected losses, while strong deposit growth increases liquidity and helps lower funding costs.

The wealth performance of India’s largest private banks, including HDFC Bank, ICICI Bank, AXIS Bank and IndusInd Bank, was better than Moody’s expected in the nine months to December 2020.

On the flip side, Yes Bank Limited (B3 stable, caa2), which was bailed out by Indian authorities in 2020, is exposed to greater asset risks than its peers, despite improving capitalization, liquidity and funding.

A recovery in the Indian economy in 2021 will help borrowers’ debt servicing capacity after the support measures expire. As a result, a sharp deterioration in asset quality is now less likely than Moody’s expected.

“Proactive efforts to raise fresh capital, improve profitability and increase credit risk reserves

Allow Indian banks to absorb unexpected losses, which supports their credit profile, ”adds Anbarasu.

Strong deposit growth further increases liquidity and helps reduce financing costs. Deposit growth outpaced credit growth for most banks through the third quarter of fiscal 2021 as consumers and businesses cut spending in the face of economic uncertainty and bolstered these banks’ already robust liquidity, she added.

Dear Reader,

Business Standard has always endeavored to provide updated information and commentary on developments that are of interest to you and have far-reaching political and economic implications for the country and the world. Your encouragement and constant feedback to improve our offering has only strengthened our determination and commitment to these ideals. Even in these troubled times resulting from Covid-19, we continue to strive to keep you updated with credible news, authoritative views, and concise comments on current affairs.
However, we have a request.

In the fight against the economic effects of the pandemic, we need your support even more so that we can continue to offer you high-quality content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscriptions to our online content can only help us achieve our goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are dedicated.

Support quality journalism and Subscribe to Business Standard.

Digital editor

Previous Lima Mall owner close to bankruptcy
Next LCD Middle Market Review: Conditions for Lenders Improve Amid COVID-19 Disruption in Q2