Ukraine war won't derail Indian economy's pandemic recovery: Moody's

New Delhi: Indian economy is back on track post the pandemic, and Ukraine's conflict was not expected to derail its recovery, global financial services provider Moody's Analytics opined.

"Following a robust rebound of over 9 per cent in the year ending March 2022 (fiscal 2021), we expect real GDP to grow 8.2 per cent in fiscal 2022, the fastest expansion among G20 countries globally and partly reflecting ongoing base effects from pandemic-led disruptions," IANS quoted Moody's new report.

Several months into the conflict, fears over the impact have moderated.

The economy, which is still afloat, has been creating a favourable atmosphere for Indian banks along with their improving loan performance and profitability, albeit from a low base, IANS reported adding that capital and liquidity levels are stable.

But the Moody report said that the global crisis triggered by the Russia-Ukraine conflict would raise inflation and interest rates in the country as well as create supply constraints.

Though India is a net food exporter, it depends on certain major agricultural imports like palm oil. The report said, "Higher food prices will therefore directly affect inflation while soaring fuel prices will have an even larger adverse impact. India's Consumer Price Index (CPI) was 6.1 per cent before the conflict and had risen to 7 per cent in March."

But Indian banks are in better shape at the moment than pre-pandemic, the report said. Loan quality had declined during the past decade after a large proportion of the banks' corporate lending books turned sour. Corporate stress became intense due to multiple factors like slowing economic growth, over-indebtedness and poor governance. But banks cleared their balance sheets, leading to the decline of non-performing loans (NPLs).

"The asset-weighted average of rated banks' gross NPL ratios nearly halved to 5.7 per cent as of December 31, 2021, from a peak of 10.3 per cent at the end of March 2018," the report said and added that it expects a further decline in NPLs.

It said that consumer and business confidence is improving along with domestic demands surging this year. The fall in loan-loss provisions as NPLs go down with an increase in net interest margins, as interest rates rise, would boost banks' profitability. Meanwhile, capital, funding and liquidity will be stable and support the overall loan growth, the report said.