Indian economy to help banks, NBFCs hike lending amid softening credit growth

India's strong economic prospects have placed Indian banks and non-bank finance companies (NBFCs) strongly enough to seize opportunities through lending growth in sectors such as infrastructure, energy transition, manufacturing, small businesses and retail with the credit quality of India's financial system having strengthened over the past three-four years.

- NIVEDITA MUKHERJEE

Record-high profitability, low delinquencies and stable domestic-oriented funding underpin stable credit ratings of financial institutions whose capitalization has also improved with healthy internal accruals and capital raising from buoyant debt and equity markets, according to Moody's Ratings (Moody's).

Moody's expects loan growth of 12 per cent -14 per cent over the next 12-15 months as loans grow in line with deposits. Systemwide net interest margins will soften selectively as banks reprice maturing deposits at higher rates to reflect previous increases in interest rates. Still, the systemwide return on assets will remain healthy with low loan-loss provisions despite a slight increase from cyclically muted levels, while banks' capitalisation will remain stable, reports Moody's.