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Mumbai: Moody’s Investors Services has revised its outlook on the Indian banking system to stable from negative. The ratings’ agency said that the revision was possible due to a “gradual improvement in the operating environment for Indian banks,” a statement said.
“The stable outlook on India’s banking system over the next 12-18 months reflects our expectation that the banks’ gradually improving operating environment will result in a slower pace of additions to problem loans, leading to more stable impaired loan ratios,” says Srikanth Vadlamani, a Moody’s Vice President and Senior Credit Officer.
Moody’s had downgraded the Indian banking system to negative mainly due to deteriorating asset quality of our banks.
Indian banks, PSU and private, have been grappling with rising bad loans for some time now. It has been the main concern of banks and various stakeholders.
Vadlamani has said that “the recovery in asset quality will be U-shaped rather than V-shaped, because corporate balance sheets remain highly leveraged.”
The stable outlook is based on Moody’s assessment of five drivers: Operating Environment (improving); Asset Risk and Capital (stable); Funding and Liquidity (stable); Profitability and Efficiency (stable); and Government Support (stable).