Outlook for India's banking system remains negative: Moody's
The Indian economy grew by 5.3 percent in the September quarter and is on track for its slowest growth in a decade for the fiscal year that ends in March. Moody's expects the high level of loan growth, at about 15 percent annually, to continue outstripping internal capital generation, posing a challenge for Indian banks to maintain capitalization at current levels, with some banks facing a need to raise new capital externally. It was not immediately clear what precisely the agency was referring to as external capital.
The ratings agency also said loan classification, especially regarding restructured loans, as well as provisioning requirement practices in India is weak. "Loan classification and provisioning requirements mask the extent of the banks' asset quality and capital challenges," Gupta said.
Moody's, however, continues to assume a high probability of systemic support by the government which has already announced its plans for capital infusions into some state-run banks. The government will decide in the next few
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