The measures taken by the government to support bank borrowers softened the growth of non-performing loans (NPL), says Moody's Investors Service, a rating agency. The ample domestic liquidity, loose monetary policy, moratoriums on loan repayments and government-guaranteed loans to small businesses have supported Indian banks' asset quality, the agency said. The restructured loans also didn't increase as they expected during the pandemic, they added in the statement.
In private sector banks like HDFC Bank, ICICI Bank, Axis Bank, Induslnd Bank and IDBI Bank, the assets performed well in the last nine months of 2020 but Yes Bank faces significant asset risks, although its capitalisation, liquidity and funding have improved.
This year, Moody's expect a sharp decline in the quality of assets. Still, a recovery of the country's economy would sustain the support even after the government's support measures expire, which decreases the chances of a sharp deterioration in asset quality.
"Proactive efforts to raise fresh capital, improving profitability and increased loan loss reserves enable Indian banks to absorb unexpected losses, which will support their credit profiles," said Alka Anbarasu, Senior Credit Officer of Moody's.
Strong deposit growth could enhance liquidity and reduce funding loss. "Deposit growth outpaced loans at most banks through the third quarter of fiscal 2021 as consumers and businesses cut spending amid economic uncertainty, bolstering already robust liquidity at these banks," Moody's said.