Guess what's going to give India's public-sector banks a big-time trouble

Their pre-provision margins are involved.

It has been noted that for India's banks, profitability will remain under pressure as banks continue to provide for problem loans.

According to a release from Moody's Investors Service, this is particularly problematic for public-sector banks, which have lower pre-provision margins and greater asset quality problems.

However, funding and liquidity will remain stable, given high domestic savings rates and a low reliance on market funding.

Moody's has said that it expects that a high degree of support from the Indian government for bank creditors will remain in place over the outlook horizon.

Here's more from Moody's Investors Service:

The Reserve Bank of India issued a set of recommendations aimed at compliance with the Financial Stability Board's "Key Attributes of Effective Resolution Regimes" by 2015. However, the Indian government in practice will likely opt for other resolution mechanisms, such as assisted mergers, instead of "bail in".

If senior creditors of an ailing public-sector bank were required to absorb losses, this could easily risk contagion of financial distress to other public-sector banks, given their similar business models and credit characteristics.

Moody's rates four private-sector and 11 public-sector banks in India that collectively account for 67% of system assets.

The negative outlook on the Indian banking system is consistent with the negative rating outlooks on the bank financial strength ratings (BFSR) of 10 of the 15 rated banks.