"Ample domestic liquidity, loose monetary policy, moratoriums on loan repayments and government-guaranteed loans to small businesses have supported Indian banks' asset quality. As a result, restructured loans have not increased as much as we expected at the onset of the pandemic," says Alka Anbarasu, Moody's Vice President and Senior Credit Officer.
Asset performance at India's largest private sector banks -
On the other hand,
A recovery in India's economy in 2021 will support borrowers' debt-servicing capability after the support measures expire. As a result, a sharp deterioration in asset quality is now less likely than Moody's previously anticipated.
"Proactive efforts to raise fresh capital, improving profitability and increased loan loss reserves enable Indian banks to absorb unexpected losses, which will support their credit profiles," adds Anbarasu.
Strong deposit growth further enhances liquidity and helps reduce funding costs. Deposit growth outpaced loans at most banks through the third quarter of fiscal 2021 as consumers and businesses cut spending amid economic uncertainty, bolstering already robust liquidity at these banks.
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