Banks shielded, oil spike may hurt: Moody’s

MUMBAI: Rating agency Moody’s Ratings and its Indian affiliate Icra said the West Asia conflict should have limited near-term impact on India’s banking system, though a prolonged oil spike could dent growth and lift inflation.

Moody’s baseline view sees banking outlook stable and real GDP growth at 6.4% in FY27; credit/deposit growth broadly aligned, loan growth in low-to-mid teens, asset quality strong on healthy corporate balance sheets and low leverage.

Profitability is likely to improve as banks pass 2025 rate cuts to deposits, widening margins. Capital buffers steady as internal accruals match capital use.

“If it’s a matter of few weeks… and oil maybe settles around $80–85 versus last year’s Brent average of $69, the economic impact will not be that much,” said Amit Pandey of Moody’s.

A prolonged conflict pushing oil to $100+ could trim growth by 1 percentage point and lift inflation/interest rates by about 1.5–2 percentage points from earlier forecasts. Risks also stem from India’s large Gulf diaspora—about a crore people sending remittances—and from Indian companies, including infrastructure firms, with regional exposure. Still, Gulf economies hold strong fiscal buffers and often deploy counter-cyclical support. Icra estimates bank credit growth at 13.5–14% in FY26 which would be around 11.5% in FY27 if the conflict’s impact stays limited, said Karthik Srinivasan, adding that a prolonged crisis may force a review.

Icra’s NBFC outlook sees their loan book growth at 17–19% in FY26 and 16–18% in the next fiscal.