Moody’s Stable Outlook on Indian Banks: NPLs and Loan Growth
Why in the news
Moody’s kept its outlook on Indian banks stable even as it flagged a likely rise in bad loans.
Key facts
- NPLs may climb to about 2.5-3.0% over 12-18 months.
- Drivers: stress in unsecured retail loans, microfinance and small business lending, slower growth and the effect of past rate hikes.
- Unsecured retail is only 10% of bank loans, and reserves against defaults are good.
- Corporate loan quality is strong, helped by deleveraging and earnings growth.
- The systemwide NPL ratio was 2.6% in September 2024, with recoveries and write-offs of legacy bad loans responsible for the fall.
Supportive conditions
- Government capex for infrastructure and industry.
- Middle-class tax cuts lifting consumption.
- Possible monetary easing lowering borrowing costs.
- GDP growth above 6.5% in FY26 (ending March 2026).
| RBI data, 21 February 2025 | Figure |
|---|---|
| Credit-to-deposit ratio | 79% (78% a year earlier) |
| Bank credit growth | 11.0% year on year |
| Deposit growth | 10.3% year on year |
Exam angle
- Rating agency: Moody’s; outlook: stable.
- Terms: NPL, LDR, unsecured retail loans.