Indian Thought Latest News & Views
Delhi: US tariff initiatives are expected to have a limited impact on Indian banks. ( bank) A global rating agency said India’s diversified and low exports will ensure that the country’s banks will see a minor impact of US tariff measures. Rating agency Moody’s Moody’s Investors Service said its outlook on the Indian banking system remains stable on a favorable operating environment driven by government capital expenditure, tax cuts for the middle-income group and monetary easing to boost consumption.
Possibility of deterioration in the asset quality of banks
According to the news, the rating agency said the US expects the credit impact on India’s banks to be limited due to India’s relatively low and more diversified exports. However, the agency said banks’ asset quality is expected to deteriorate moderately due to increased stress in unsecured retail loans, microfinance loans and small business loans after substantial improvements in recent years. The agency said banks’ profitability will be impacted compared to FY25, with the impact limited as the decline in net interest margins (NIM) is likely to be gradual.
Banks will maintain strong capitalisation
The report said banks will maintain strong capitalisation, supported by internal capital generation that will keep pace with asset growth and easy access to a deep domestic equity market. Meanwhile, the agency’s unit Icra Ratings said non-bank lenders’ capital position and healthy earnings performance will help them absorb the adverse impact on loan quality and regulatory developments.
Domestic rating agency Moody’s has projected their growth rate to be 16-18 per cent in FY26, lower than the rate seen in the last few fiscal years. The spread of stress into the secured asset segment remains a key monitoring issue, it said.
