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Asset quality cycle of banks to improve, says Moody's

Stable system outlook driven by five factors, including operating environment and government support

Moody’s said on Monday the banking system would soon move past the worst point of its down-cycle, supporting a stable outlook for the sector over 12-18 months.

The stock of impaired loans might still increase during the horizon of this outlook. Yet the pace of new impaired loan formation should be lower than what it has been over the last few years, said Srikanth Vadlamani, vice-president and senior officer at Moody’s.

The performance of India’s state-owned and private continued to diverge. State-owned would require significant capital over the next three years, with access to capital markets being limited. Their private sector counterparts would benefit from solid capitalisation and good profitability, he said.

The stable outlook is based on Moody's assessment of five drivers — operating environment (stable); asset risk and capital (stable); funding and liquidity (stable); profitability (stable); and support (stable).

The operating environment for Indian is supported by a stabilising economy. Moody's baseline scenario assumes headline gross domestic product (GDP) growth of 7.4 per cent over the next two years, compared with 7.3 per cent in 2015. Key drivers are favourable monsoon season, ongoing public investment, and continued growth in foreign direct investment.

would remain a negative driver of the profiles of most rated Indian banks. But the pace of deterioration should slow, according to report.

Aside from legacy issues for some banks, the underlying asset trend for would be stable because of the generally supportive operating environment.

Capital levels are a key weakness for state-owned banks.  The announced capital infusion plans of the fall short of the amount required for full capitalisation. However, Moody's said a potential way to bridge this capital shortfall would be to slow loan growth to the low single digits over three years.

Funding and liquidity are bright spots, and remain supported by Moody's expectation of relatively subdued loan growth during the outlook.

Asset quality cycle of banks to improve, says Moody's
Profitability for the will reflect stabilising net interest margins (NIMs) and costs. Moody's said it expected limited policy rate cuts over the next 12 months, which should help stabilise NIMs. costs will remain high for the sector, but no higher than in recent years for the industry.

State-owned would get a high level of systemic support, irrespective of their size. Recent allocations, wherein weak smaller received a disproportionately higher share of capital, supported this view, Moody’s added.

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Business Standard
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Business Standard

Asset quality cycle of banks to improve, says Moody's

Stable system outlook driven by five factors, including operating environment and government support

Abhijit Lele  |  Mumbai 

Moody's

Moody’s said on Monday the banking system would soon move past the worst point of its down-cycle, supporting a stable outlook for the sector over 12-18 months.

The stock of impaired loans might still increase during the horizon of this outlook. Yet the pace of new impaired loan formation should be lower than what it has been over the last few years, said Srikanth Vadlamani, vice-president and senior officer at Moody’s.


The performance of India’s state-owned and private continued to diverge. State-owned would require significant capital over the next three years, with access to capital markets being limited. Their private sector counterparts would benefit from solid capitalisation and good profitability, he said.

The stable outlook is based on Moody's assessment of five drivers — operating environment (stable); asset risk and capital (stable); funding and liquidity (stable); profitability (stable); and support (stable).

The operating environment for Indian is supported by a stabilising economy. Moody's baseline scenario assumes headline gross domestic product (GDP) growth of 7.4 per cent over the next two years, compared with 7.3 per cent in 2015. Key drivers are favourable monsoon season, ongoing public investment, and continued growth in foreign direct investment.

would remain a negative driver of the profiles of most rated Indian banks. But the pace of deterioration should slow, according to report.

Aside from legacy issues for some banks, the underlying asset trend for would be stable because of the generally supportive operating environment.

Capital levels are a key weakness for state-owned banks.  The announced capital infusion plans of the fall short of the amount required for full capitalisation. However, Moody's said a potential way to bridge this capital shortfall would be to slow loan growth to the low single digits over three years.

Funding and liquidity are bright spots, and remain supported by Moody's expectation of relatively subdued loan growth during the outlook.

Asset quality cycle of banks to improve, says Moody's
Profitability for the will reflect stabilising net interest margins (NIMs) and costs. Moody's said it expected limited policy rate cuts over the next 12 months, which should help stabilise NIMs. costs will remain high for the sector, but no higher than in recent years for the industry.

State-owned would get a high level of systemic support, irrespective of their size. Recent allocations, wherein weak smaller received a disproportionately higher share of capital, supported this view, Moody’s added.

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Asset quality cycle of banks to improve, says Moody's

Stable system outlook driven by five factors, including operating environment and government support

Stable system outlook driven by five factors, including operating environment and government support
Moody’s said on Monday the banking system would soon move past the worst point of its down-cycle, supporting a stable outlook for the sector over 12-18 months.

The stock of impaired loans might still increase during the horizon of this outlook. Yet the pace of new impaired loan formation should be lower than what it has been over the last few years, said Srikanth Vadlamani, vice-president and senior officer at Moody’s.

The performance of India’s state-owned and private continued to diverge. State-owned would require significant capital over the next three years, with access to capital markets being limited. Their private sector counterparts would benefit from solid capitalisation and good profitability, he said.

The stable outlook is based on Moody's assessment of five drivers — operating environment (stable); asset risk and capital (stable); funding and liquidity (stable); profitability (stable); and support (stable).

The operating environment for Indian is supported by a stabilising economy. Moody's baseline scenario assumes headline gross domestic product (GDP) growth of 7.4 per cent over the next two years, compared with 7.3 per cent in 2015. Key drivers are favourable monsoon season, ongoing public investment, and continued growth in foreign direct investment.

would remain a negative driver of the profiles of most rated Indian banks. But the pace of deterioration should slow, according to report.

Aside from legacy issues for some banks, the underlying asset trend for would be stable because of the generally supportive operating environment.

Capital levels are a key weakness for state-owned banks.  The announced capital infusion plans of the fall short of the amount required for full capitalisation. However, Moody's said a potential way to bridge this capital shortfall would be to slow loan growth to the low single digits over three years.

Funding and liquidity are bright spots, and remain supported by Moody's expectation of relatively subdued loan growth during the outlook.

Asset quality cycle of banks to improve, says Moody's
Profitability for the will reflect stabilising net interest margins (NIMs) and costs. Moody's said it expected limited policy rate cuts over the next 12 months, which should help stabilise NIMs. costs will remain high for the sector, but no higher than in recent years for the industry.

State-owned would get a high level of systemic support, irrespective of their size. Recent allocations, wherein weak smaller received a disproportionately higher share of capital, supported this view, Moody’s added.
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Business Standard
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