Moody’s Ratings on Wednesday said that Indian banks and non-bank finance companies (NBFCs) are well placed to use the country’s strong economic prospects to their advantage to increase lending in infrastructure, energy transition, manufacturing, small businesses and retail.

The rating agency also disclosed that the credit quality of India’s financial system has strengthened over the past 3-4 years.

“Record-high profitability, low delinquencies and stable domestic-oriented funding underpin financial institutions’ stable credit ratings. Their capitalisation has also improved with healthy internal accruals and capital raised from buoyant debt and equity markets,’’ it added.

Moody’s expects a lending growth of 12-14 per cent over the next 12-15 months as loans grow in tandem with deposits. According to the rating agency, the systemwide return on assets will remain healthy with low loan-loss provisions despite a slight increase from cyclically muted levels. Banks’ capitalisation is expected to remain stable.

The Reserve Bank of India’s (RBI) initiatives to pre-emptively manage credit growth in high-risk segments such as unsecured loans, along with tighter scrutiny on areas such as customer protection, risk management, cyber security and IT infrastructure, will enhance financial stability.

“For India’s financial institutions, leadership in technology adoption as well as their risk management, governance, customers’ experience and balance-sheet buffers will separate winners from losers over the next 2-3 years,” Amit Pandey, Moody’s vice-president and senior analyst, said.