New Delhi: Indian banks are expected to face minimal impact from the recent US tariff measures, according to global rating agency Moody’s Investors Service. The agency stated that India’s diversified export portfolio and relatively low export volume to the US would limit the effects of these tariffs on the country’s banking sector.
Moody’s maintained a stable outlook on India’s banking system, citing favorable operating conditions supported by government capital expenditure, tax cuts for the middle class, and monetary easing to boost consumption. The agency emphasized that despite the potential challenges posed by the tariffs, India’s banking sector would remain largely unaffected due to the country’s lower reliance on US-bound exports.
However, the rating agency did highlight potential risks, particularly related to unsecured retail loans, microfinance loans, and small business loans. After significant improvements in recent years, Moody’s noted a slight decline in asset quality could emerge as a result of rising stress in these loan segments.
The report also anticipated a moderate dip in bank profitability in FY 2025, although this effect would be limited, with net interest margins (NIM) expected to gradually decrease. Despite these challenges, the agency assured that Indian banks would maintain robust capitalization, supported by internal capital generation, asset growth, and easy access to the deep domestic equity market.
Meanwhile, ICRA Ratings, Moody’s Indian unit, stated that non-bank lenders’ strong capital positions and healthy income performance would help them absorb any adverse effects from loan quality and regulatory developments.
Moody’s projected a growth rate of 16-18% for Indian banks in FY 2026, lower than the growth rates seen in previous financial years. The agency warned that stress in the safe asset segment remained a key issue to monitor.
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