Vinu: Manu, I saw Moody’s made a statement about Indian banks. What are they saying?

Manu: Moody’s said that despite global trade tensions, the Indian banking sector is expected to broadly preserve its asset quality, thanks to supportive domestic economic conditions.

Vinu: That’s good to hear. What about non-performing loans? Any updates?

Manu: Yes. Moody’s expects the system-wide NPL ratio to remain at 2–3% in the next 12 months. This is almost the same as the 2.5% at the end of December 2024.

Vinu: Interesting. Are all loan segments performing the same?

Manu: Not really. They mentioned that the divergence in loan performance will continue across different product types and lenders.

Vinu: Any particular segment facing more trouble?

Manu: Yes, FY25 saw higher slippages in unsecured loans like credit cards, personal loans, and microfinance loans.

Vinu: What about vehicle loans?

Manu: Moody’s said the asset quality of vehicle loans may weaken in some areas. This is because the pent-up demand after the Covid pandemic is fading and loans are maturing.

Vinu: Were there any specific concerns raised?

Manu: Yes. Delinquencies have increased particularly in two-wheeler loans. These loans are more vulnerable compared to those for passenger or commercial four-wheelers.

Vinu: Why are two-wheeler loans more vulnerable?

Manu: The report says it's due to younger borrowers with lower income and less stable credit habits.

Vinu: How is credit growth looking?

Manu: Moody’s said RBI’s macro-prudential measures have prevented excessive credit growth. They also expect growth in unsecured retail loans to slow down.

Vinu: Did they give any projections for loan growth?

Manu: Yes. They expect system-wide loans to grow at 11–13% in the year ending March 2025, compared to 20% growth in March 2024.

Vinu: Manu, can you help me understand some of the technical terms they used in the article? Like, what exactly is “NPL”?

Manu: Sure, Vinu. NPL stands for Non-Performing Loans. These are loans where the borrower has stopped making interest or principal repayments for a certain period—typically 90 days or more.

Vinu: Got it. They also used the term “slippages.” What does that mean?

Manu: “Slippages” refer to loans that were performing well earlier but have now turned into non-performing loans. For example, a personal loan where EMIs were being paid regularly but have now stopped—this is a slippage.

Vinu: And what about “asset quality”?

Manu: Asset quality refers to the health of a bank’s loan book. If most loans are being repaid on time, the asset quality is considered good. If more loans are becoming NPLs, the asset quality is poor.

Vinu: They also mentioned “delinquencies.” Is that the same as NPL?

Manu: Not exactly. Delinquencies mean delayed payments. If a borrower misses one or two EMIs, it’s a delinquency. But if the delay goes beyond a threshold, like 90 days, then it becomes an NPL.

Vinu: I see. What’s meant by “macro-prudential measures”?

Manu: Macro-prudential measures are steps taken by RBI to ensure the stability of the entire financial system. These include rules and limits to prevent risky lending and to control excessive credit growth.

Vinu: And finally, what do they mean by “credit growth”?

Manu:  Credit growth refers to the rate at which banks are giving new loans. If banks gave ₹100 crore last year and ₹120 crore this year, then there’s 20% credit growth.

Vinu: Thanks, Manu. That really helped me understand the article better!

Manu:  Glad to help, Vinu! Understanding these terms makes it easier to follow banking news.

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