Indian banks' profitability to remain healthy despite slight moderation, says Moody's

Global ratings agency Moody's Investors Service has come out with a note underscoring a positive outlook for India's banking system, and expressed confidence in the resilience and growth potential of the sector.

A note issued on March 7 by Moody's said that the credit growth in India is likely to be supported by domestic demand and government's capital expenditure, which will further improve the banks' asset quality. It expects India to be the fastest-growing economy among major G20 countries.

The Moody's report also added that the profitability of Indian banks should remain at healthy levels despite slight moderation, even though higher risk weights for exposure to NBFCs and unsecured retail loans could dampen banks' capital ratios. "Banks' funding and liquidity will be stable. We continue to expect strong government support for banks in times of need," the ratings agency's said.

The stock market sentiment in banking shares has been upbeat in the month of February and so far in March, nudging the Bank Nifty index back towards its all-time high. Robust credit growth, lower requirement for provision of NPAs and stable margins are being cited as factors working in favour of private banking shares. According to Avendus Olivo PMS executive director and portfolio manager Tridib Pathak, private banks offer a good investment opportunity, strong credit growth, and stabilising net interest margins.