Moody's raises Indian banking outlook to ‘stable'

Moody's has changed the fundamental credit outlook for the Indian banking system to stable from negative that was assigned in January 2009.The banking industry outlook has returned to stable on the back of favourable trends in India's economic indicators over the last few months.

The Indian economy and its credit cycle seem to have bottomed out and hence it is expected that any credit cost pressures for the banks would ease, going forward, although the volume of non-performing and restructured loans is not expected to come down significantly in the short-term, Moody's said in its latest update on Asian banking system industry outlook.

Moody's has changed to stable from the negative the industry outlook for 12 of the banking systems in Asia-Pacific. It has maintained negative outlook for four — Cambodia, Japan, Vietnam and Mongolia.

Besides India, the banking systems with stable outlook are Australia, China, Hong Kong, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand.

As regards India's GDP growth this fiscal, Moody's has quoted that the economy may grow at around 7 per cent backed by buoyant industry growth and an upside in agriculture output.

However, it has noted that the management and the future performance of all those restructured loans in the banking system, estimated at 4.5 per cent of total loans, will drive the credit risk profile as well as the evolution of the Indian rated banks' financial fundamentals over the short-to-medium term.

Three factors underpinned the generally better outlook across most of Asia's banking systems. They are, improving local economic prospects and stabilising global conditions; and improving access to international debt and money markets.