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Citing moderate deterioration of asset quality since the onset of the pandemic and likely pick-up in credit growth with economic recovery, credit rating agency Moody’s Investors Service in its latest report has raised the outlook for the Indian banking system to ‘stable’ from ‘negative’.

According to the report, the quality of corporate loans has improved, indicating that banks have recognized and provisioned for all legacy problem loans in this segment. The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred.

Besides, the rating agency assumes that the government will provide a very high level of support for rated public sector banks, given their strong links to the government. On the economic growth front, Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3 per cent in the fiscal year ending March 2022 and 7.9 per cent in the following year.