Indian financial system to face challenges due to stiff green energy commitments: Moody's

During the last month's United Nations Climate Change Conference, Prime Minister Narendra Modi announced that India would become a net-zero carbon emitter by 2070. India stands presently at the world’s third-biggest emitter of polluting gases and solid wastes.

The financial system in India is likely to face some of the challenges due to the stiff green-energy commitments made by the nation as more than a fourth of banking sector loans are to the so-called polluting industries. But its immediate outlook for Indian banks is stable as a likely pick up in lending growth in a supportive policy environment should drive down credit costs. The Challenging decarbonization targets set by emerging market sovereigns ie. China and India, for the next 5 to 10 years will likely add long-term pressure to the financial systems, which means a significant transformation in energy sourcing, production, and usage, all of which are largely financed by the largest nationwide banks. On the banking outlook, Moody’s said that recovery in economic activity would drive credit growth, with positive effects on asset risks. However, asset quality concerns remain because of the stress faced by small & medium enterprises and the retail segment. Moody’s projected a stable outlook for banks in the entire emerging market space for the next 12-18 months, supported by continued recovery in economic activity, as well as banks’ solid balance sheets, including high levels of loan loss reserve, high profitability, strong liquidity and capital position, which will help mitigate near-term risks. In India, continued government support for public sector banks would be positive for loan growth, supported by new equity injections in 2022.

Source: The Economic Times