Indian banks' large deposit base to ward off risks from economic instability

Thanks to buoyat capital market, too.

Standard and Poor's Ratings Services has noted that India's economic risk trend, which affects the banking sector, is negative.

According to a release from Standard and Poor's Ratings Services, in its view, although the new government has the willingness and capacity to implement reforms necessary to restore some of India's lost growth, it sees only a gradual economic recovery.

The release also noted that risk from economic imbalances is expected to be low in the near term as credit growth could remain moderate and inflation-adjusted property prices are likely to decline.

However, the release also said that prolonged weakness in asset quality could pose downside risk.

Here’s more from Standard and Poor's Ratings Services:

We view the trend for industry risk to be stable. The central bank is continuously strengthening banking regulations and supervision. In our opinion, India's banking sector is underpenetrated, and a large section of the population still does not have access to bank credit or even deposit accounts.

We therefore see room for Indian banks to grow. Competition could intensify marginally for low-risk assets amid high risk and moderate growth.

In our view, Indian banks' large deposit base and ability to issue long-term senior bonds to fund infrastructure loans, and a buoyant capital market will continue to support their funding profiles.