Zee News reported that Moody's recently changed the fundamental credit outlook for the Indian banking system to negative from stable, primarily citing the economic downturn and higher loan delinquency rates as reasons.

Moody's Investors Service in a statement said that "The fundamental credit outlook for the Indian banking system has been changed to negative from stable."

It said that the change reflects the deceleration of the Indian economy in the context of the global financial turmoil and an increasingly bleak economic outlook combined with higher delinquency rates, indicates a potential weakening in the asset quality of Indian banks.

According to the rating agency, the negative outlook expresses its view on the likely future direction of fundamental credit conditions in the banking industry over the next 12 to 18 months.

Mr Nondas Nicolaides VP of Moody's or senior Analyst in the Financial Institutions Group said that "The global deleveraging process has caused a large capital outflow from India since October 2008 and, as a result, there has been a tightening in the provision of credit to the real economy from banks and higher capital cost for corporates."

Mr Nicolaides said that these factors are likely to put a strain on the country's banking system's asset quality, with higher levels of non-performing loans.

He said that "Moreover, a reversal of the favorable credit cycle in India that has underpinned the robust loan growth of the past few years has gradually been taking place, combined with weakening business and corporate earnings."

The statement said that Moody's stress testing of the bank's asset quality suggests that their financial profiles are likely to come under pressure, which could trigger negative rating actions.

(Sourced from zeenews.com)