Ukraine-Russia crisis won't derail recovery in Indian economy observes Moody's Investor Service

Global rating agency Moody's Investor Service does not see the Russia-Ukraine war to derail India's economic recovery as the country has come back on track following a gruelling COVID-19 pandemic, the rating agency said in a note.

"Several months into the conflict, fears over the impact have moderated," Moody's said in "Banking–Emerging markets: New risks from Ukraine conflict create diverging paths for emerging market banks" note on May 17.

The rating agency said that it expects India's real GDP to grow at 8.2 percent in 2022-23, the fastest expansion among G20 countries, partly reflecting ongoing base effects from pandemic-led disruptions.

Moody's growth estimate for India is optimistic when compared to the Reserve Bank of India, which in April downgraded its GDP forecast to 7.2 percent for 2022-23 from 7.8 percent, taking into account the impact of the Ukraine-Russia war and spurt in global crude prices.

"The global economic fallout from the Russia-Ukraine military conflict will push up inflation and interest rates in India, and create supply constraints," Moody's said.

The rating agency warned that higher food prices will directly affect inflation, while soaring oil prices will have an even larger impact.

Global crude oil prices have rallied past the $100 a barrel mark and have remained perched at an eight-year high since March as sanctions on Russian oil exports dampened outlook for supply.

The rating agency, however, does not expect domestic banks to be adversely affected by the crisis. "Indian banks, however, are in better shape now than before the pandemic," Moody's said.

"We expect NPLs to decline further as banks make recoveries or write off legacy problem debt, while formation of new NPLs will be stable as the economy recovers," the rating agency said.

Moody's expects loan growth to help push bad loans ratios down by expanding the overall pool of loans, "even though new defaults may arise from loans that have been restructured because of pandemic-related economic disruption".