Moody’s Investors Service on Wednesday said its outlook on India’s banking system was negative, reflecting its view that high leverage in the corporate sector could prevent any meaningful recovery in asset quality over the next 12-18 months. “The negative outlook on the Indian banking system pertains mainly to the public-sector banks, which represent more than 70 per cent of total banking-system assets,” said Gene Fang, a Moody’s Vice President and Senior Credit Officer, in a press release, on Moody's report on ‘Banking system outlookIndia’.
“These banks have experienced higher growth rates in non-performing and restructured loans, as well as greater weakening in profits, than private-sector banks, and these trends are unlikely to improve for public-sector banks,” Mr. Gene Fang added.
“Going forward, India’s corporate sector will remain highly levered, representing an obstacle to a cyclical recovery in asset quality.”
Moody’s base-case forecast is for GDP growth of 5 per cent for the fiscal year ending March, 2015, and 5.6 per cent for 2015-16.
“Although the new government of Prime Minister Narendra Modi may formulate some policies within the 12-18 month horizon of this outlook, it will take longer to see an impact on the real economy,” said the report.
