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American tariff initiative is expected to have limited impact on Indian banks. A global rating agency said on Wednesday that India’s diverse and low exports would ensure that American tariff steps would have a slight impact on the country’s banks. According to PTI news, the rating agency Moody’s Moody’s Investors Service said that its approach to the Indian banking system on a favorable -motivated operating environment inspired by monetary relaxation to promote government capital expenditure, tax deduction and consumption for middle income groups remains stable.
Possibility of decline in asset quality of banks
According to the news, the rating agency said that the US is expected to limit India’s relatively low and more diverse exports to limit debt effects on its banks. However, the agency stated that due to an increase in unsecured retail loans, microfinance loans and stress in small business loans after adequate improvements in recent years, there is a possibility of moderately declining bank’s asset quality. The agency said that the profitability of banks would be affected as compared to the financial year 2025, as well as limited the effect as the decline in net interest margin (NIM) is likely to decline gradually.
Banks will maintain strong capitalization
The report states that banks will maintain strong capitalization, which will support from internal capital creation that will maintain coordination with asset growth and maintain easy access to a deep domestic equity market. Meanwhile, the agency’s unit Ecra Ratings stated that the capital status of non-bank lenders and healthy income performance will help them absorb the adverse effects on loan quality and regulatory development.
Domestic rating agency Moody’s has estimated that their growth rate in FY 2026 will be 16–18 percent, lower than the rate seen in the last few financial years. It states that the spread of tension in the safe asset segment remains a major monitoring issue.
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