Bond credit rating company Moody's has upgraded the outlook for the Indian banking system to stable from negative suggesting that the deterioration of asset quality since the onset of the Covid-19 pandemic has been moderate and an improving operating environment will support asset quality.

Moody's Investors Service In its banking system outlook said that India's economy will continue to recover in the next 12-18 months with Gross Domestic Product growing 9.3 per cent in the fiscal year ending March 2022 and 7.9 per cent in the following year. The pickup in economic activity will drive credit growth, which we anticipate to be 10-13 per cent per annum. furthermore, weak corporate financials and funding constraints at finance entities have been key negative factors for banks but these risks have receded, it said.

The basis of Moody's revision of outlook for the Indian banking system has been the limited impact that the pandemic has on the deterioration of asset quality of banks despite relatively limited regulatory support for borrowers. We expect asset quality will further improve, leading to declining in credit costs, as economic activity normalises," Moody's banking system outlook said.

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