Moody’s Investors Service has revised the outlook for banks to stable from negative, citing receding downside risks to the economy and the financial system.

The deterioration of asset quality since the onset of the pandemic has been moderate and an improving operating environment will support asset quality.

The level of problem loans for rated Indian banks has moved down to 7.1 per cent in 2020-21 from 8.5 per cent in 2018-19. Declining credit costs as a result of improving asset quality will lead to improvements in profitability and capital will remain above the pre-pandemic levels.

The rating agency observed that the quality of corporate loans has improved because of provisioning for legacy problems, while the quality of retail loans has deteriorated but to a limited degree.

9% NPA: Crisil

Gross non-performing assets (NPAs) of banks are expected to increase to 8-9 per cent in the current financial year, Crisil has said in a report.

This will be well below the peak of 11.2 per cent seen at the end of fiscal 2018.

According to the agency, the Covid-19 relief measures such as the restructuring dispensation and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise in banks gross NPAs.

With around 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets comprising gross NPAs and loan book under restructuring should touch 10-11 per cent this fiscal, it said.