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February 9, 2026 at 6:03 AM IST
Moody’s Ratings said a strong operating environment, underpinned by India’s robust economic growth, will support the banking system’s solid fundamentals over the next 12–18 months, maintaining a stable outlook for the sector.
In its latest banking system outlook, the global ratings agency said favourable macroeconomic conditions, monetary policy stability and structural reforms will continue to anchor credit strength. Moody’s forecasts India’s real GDP growth at 6.4% in 2026-27, the fastest among G-20 economies, driven by resilient domestic consumption and policy measures that have improved household affordability
Moody’s expects system-wide loan growth to accelerate modestly to 11–13% in 2026-27, supported by steady demand across retail and corporate segments. Asset quality is projected to remain resilient, with the non-performing asset ratio holding in a low 2–2.5% range, even as slippages rise marginally as loan vintages season.
Stress among micro, small and medium enterprises is expected to persist but remain contained, with exposures to tariff-affected export sectors accounting for less than 5% of total system loans. The recent India–US trade agreement is expected to gradually ease operating pressures in these segments, reducing downside risks
Corporate asset quality is likely to stay healthy, supported by strong balance sheets and improved profitability among large borrowers. However, recoveries from legacy stressed assets are expected to taper, reflecting the substantial clean-up already undertaken by banks.
Profitability will remain stable, Moody’s said, with system-wide return on assets rising to 1.2–1.3% in 2026-27. Net interest margins are expected to widen gradually as deposit costs decline with a lag following policy rate cuts in 2025, while lending rates remain broadly stable. Fee income growth from wealth management and insurance distribution will further support earnings, although treasury gains are likely to moderate as bond yields stabilise
Report said capitalisation across the sector will remain strong, supported by internal capital generation broadly in line with asset growth. While the phased adoption of expected credit loss norms and final Basel III rules from 2027 will lead to modest reductions in capital ratios, Moody’s expects the overall impact to be broadly neutral given existing buffers.
Funding and liquidity conditions are also expected to stay stable, with loan growth tracking deposit mobilisation and the loan-to-deposit ratio holding around 80%. Moody’s added that government support for public sector banks remains very high, reinforcing system stability over the outlook period.
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