Moody’s Ratings on Tuesday said that India’s strong domestic economic environment will continue to support economic growth, helping banks maintain healthy asset quality and keeping systemwide nonperforming loan (NPL) levels between 2–3 per cent over the next 12 months.In a report focused on the Indian banking sector, Moody’s stated that even amid heightened global economic uncertainties, Indian banks are likely to remain resilient due to the strength of domestic fundamentals.“While trade tensions have heightened economic uncertainty globally, India’s domestic economic conditions will continue to be supportive for growth. That will underpin banks’ asset quality, although the divergence of loan performance will remain across different product types and lenders,” Moody’s said as quoted PTI.The report noted that several domestic factors—including increased government capital spending, tax relief for the middle class to boost consumption, and supportive monetary policy—will provide a cushion for the banking system. Furthermore, India’s relatively low dependence on global goods trade offers a degree of protection from external shocks.“This will help banks preserve their asset quality. We expect the systemwide nonperforming loan (NPL) ratio to remain at 2-3 per cent in the next 12 months, compared to 2.5 per cent at the end of December 2024,” the agency added.Moody’s also highlighted the continued strength of wholesale loans, citing corporate profitability and low leverage as key factors. Wholesale lending forms a significant portion of Indian banks’ portfolios, alongside retail and agricultural loans.The agency cautioned that unsecured retail loans would remain more vulnerable than secured loans in the short to medium term.“New NPL formation rates for secured retail loans have broadly stayed low, while those for unsecured loans have risen in the past few quarters. As this trend persists, small private sector banks will continue to have weaker asset quality, than large private banks and public sector banks,” Moody’s said.