Asset quality of Indian banks will be stable in 2023: Moody's

CHENNAI: The asset quality of Indian banks and those in Southeast Asian countries will be stable in 2023, said Moody's Investors Service in its latest report on the banking sector in emerging markets.

Indian banks will benefit from a stable operating environment and significant improvements in their solvency metrics, the report notes.

According to Moody's, the rising interest rates amid high inflation will lead to gradual increases in margins, supporting banks' revenue.

On the other hand, higher debt-servicing costs and slowing economic growth pose asset risks for banks, although they are well positioned to cope with potential growth in problem loans thanks to prudent underwriting standards and ample reserves.

Inflation rates will fall but remain high in 2023 while economic slowdown is likely to be moderate, the report notes.

According to Moody's capital inflows support funding and liquidity of the banks in emerging markets.

During the first nine months of 2022, capital inflows into India stood at over 2 per cent of its gross domestic product.

The credit rating agency also said, the emerging markets face the double whammy of inflation and currency depreciation.