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.