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Indian banks' credit profiles well placed to weather global banking sector stress: Moody's

Indian banks' credit profiles well placed to weather global banking sector stress: Moody's
The credit quality of Indian banks and non-bank financial institutions will remain resilient despite a challenging environment for banks globally, according to Moody's Investors Service which said they are well placed to weather global banking sector stress.

The global rating and research agency said strong domestic demand in India, improving credit conditions for bank borrowers, and strengthened solvency and funding of Indian financial institutions will support their credit quality.

Also, Moody's Indian affiliate ICRA expects the banking sector's performance to remain strong with healthy profitability - primarily driven by strong loan growth and a favourable credit environment.

Moody's said credit conditions in India have gradually improved, with a significant reduction in the banks' legacy problem in loans over the past three years.

Stress among non-bank financial institutions in India too has abated, Moody's said.

"Banks globally are facing liquidity pressures amid tighter monetary policy, outflows of excess liquidity built up during the coronavirus pandemic into more profitable investments and increased risk aversion among investors because of stress in the US banking sector," said Alka Anbarasu, a Moody's Associate Managing Director.

"Indian banks, however, have strong domestic funding franchises and ample liquidity to support growth in their loans in line with India's strong economic conditions," Anbarasu added.

Moody's guidance assumes important at a time when there has been instability in some banks in the US.

One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks - Signature Bank and First Republic Bank.

The collapse of a few regional banks in the US had sent ripples across the global banking industry and posed fears of a contagion effect across economies.

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