The resilience of Indian banks and Non-Bank Financial Corporations (NBFCs) in terms of credit quality will remain intact despite the challenging global banking landscape, said Moody's. The rating and research agency affirmed that these institutions are well-equipped to withstand the stress faced by the global banking sector.

Moody's highlighted that the credit quality of Indian financial institutions will be supported by robust domestic demand, improved credit conditions for borrowers, and strengthened solvency and funding. Additionally, the Indian affiliate of Moody's, Investment Information and Credit Rating Agency (ICRA), anticipates strong performance in the banking sector, characterized by healthy profitability. This growth will primarily stem from a surge in loan activity and a favorable credit environment.

Moody's acknowledged the gradual improvement in credit conditions within India, particularly in terms of reducing legacy loan issues faced by banks over the past three years. The stress among Indian NBFCs has also subsided, as observed by Moody's.

Alka Anbarasu, an Associate Managing Director at Moody's, noted that global banks are grappling with liquidity pressures due to tighter monetary policies, the redirection of excess liquidity accumulated during the COVID-19 pandemic towards more profitable investments, and increased investor risk aversion resulting from the challenges faced by the U.S. banking sector. However, Indian banks possess strong domestic funding sources and sufficient liquidity to support loan growth in line with India's robust economic conditions, added Ms. Anbarasu. Moody's insights assume significance in a time marked by the instability of certain U.S. banks.

One notable player in the realm of technology startup financing, Silicon Valley Bank, faced significant difficulties and ultimately collapsed on March 10, triggering a bank run by depositors. This event caused a contagion effect, leading to the subsequent closure of other banks such as Signature Bank and First Republic Bank. The collapse of several regional banks in the U.S. reverberated throughout the global banking industry, generating concerns about potential contagion effects on economies.

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