Mumbai : Moody’s Investors Service upgraded its outlook for the country’s banking system to ‘stable’ from ‘negative’ on the expectation of reduction in pace of accretion of bad loans over the next few years helped by improvement in the operating environment, reports PTI.

The rating agency had a negative outlook on the banking system for four years, starting 2011, due to the asset quality trends. “We do think the stock of non-performing loans (NPLs) will keep going up, we are not saying that has bottomed out, but the pace of addition to NPLs will come down meaningfully over the next two years as compared to what it has been over the last four years,” Moody’s Vice President (Senior Credit Officer) Srikanth Vadlamani said. Moody’s rates 15 banks in the country that together account for around 70 per cent of the system assets. While 11 of them are public sector banks, four are from private sector.

He said the pace of bad loans will be reduced as the operating environment is getting better.

“The GDP growth has stabilised and so are the leading indicators of asset quality which point to some stability,” he said.  Moody’s expects the country will record GDP growth of around 7.5 per cent in 2015 and 2016. Recently, World Bank has also retained the country’s GDP growth at 7.5 per cent for this fiscal.

“If you look at the investor sentiment, we think that it remains very positive and that is evident in the movement of currency that we have seen over the last two months,” Srikanth added.

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