Moody’s says outlook for India’s banking system is 'stable'

'We expect the operating environment for banks to remain favorable, helped by government capital expenditure, tax cuts for middle class income groups to boost consumption and monetary easing,' says Moody's

Moneycontrol News

March 12, 2025 / 13:29 IST

Moody’s says outlook for India’s banking system is 'stable'

26 Aug, 2025 12:21

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Global ratings agency Moody's Ratings on March 12 said its outlook for India's banking system is 'stable', "backed by sound economic growth and strong bank fundamentals".

"Our outlook for India's banking system is stable. We expect the operating environment for banks to remain favorable, helped by government capital expenditure, tax cuts for middle class income groups to boost consumption and monetary easing," said the ratings agency.

"We expect India's real GDP growth to exceed 6.5% in the fiscal year ending March 2026 (fiscal 2025-26). Banks' asset quality will deteriorate moderately after substantial improvements in recent years, with some stress in unsecured retail loans, microfinance loans and small business loans. Banks' profitability will remain adequate as declines in net interest margins (NIMs) are likely to be marginal amid modest rate cuts," it added.

The Moody's report comes a day after IndusInd Bank shares tanked 27% after the firm reported derivative losses that could diminish its net worth by 2.35%.

Banks will maintain strong capitalisation, supported by internal capital generation that keeps pace with asset growth and easy access to a deep domestic equity market. Banks' funding and liquidity will be stable, with loans growing in line with deposits. We continue to expect strong government support for banks in times of need, said Moody's.