Global credit rating agency Moody's Investors Service has said in a new report that the country's banking system is moving past the worst of its asset quality down cycle. This trend will support its stable outlook for the sector over the next 12-18 months, said the report titled "Banking System Outlook -- India: Bottoming Asset Cycle,Strong Liquidity Support Stable Outlook". "While the stock of impaired loans may still increase during the horizon of this outlook, the pace of new impaired loan formation should be lower than what it has been over the last few years," said Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer. Vadlamani said that the performance of India's state-owned and private banks continues to diverge. "The state-owned banks will require significant capital over the next three years with limited access to the capital markets, while the private banks benefit from solid capitalisation and good profitability", he said. Moody's rates 15 banks in India that together account for around 70 percent of system assets. The rating outlook on 11 of the banks is positive, reflecting Moody's positive outlook on the sovereign rating and the high degree of government support that could be expected for the banks if needed.