Moody’s Forecasts Indian Economy to Expand at 6.6% in FY25

Moody’s Ratings predicts a 6.6% expansion for the Indian economy in the fiscal year ending March 2025 (FY25). This growth trajectory is anticipated to fuel strong credit demand, particularly benefiting the Non-Banking Financial Companies (NBFCs), despite challenges posed by rising funding costs.

Economic Growth Projection

Moody’s anticipates India’s GDP to grow by 6.6% in FY25, followed by a 6.2% growth in the subsequent year. This projection, albeit slightly lower than some other estimates, reflects the agency’s assessment of the economic landscape.

Impact on NBFC Sector

Strong economic growth is expected to drive robust loan growth in the NBFC sector, offsetting the effects of increasing funding costs on profitability. The sector’s resilience is further bolstered by favorable economic conditions, which are projected to help maintain asset quality amidst rising interest rates and customer debt burdens.

Loan Growth and Diversification

Aggregate loan growth in NBFCs surged to 20.8% year-on-year in September 2023, primarily fueled by retail loan demand. Looking ahead, Moody’s anticipates a continued growth trajectory of about 15% over the next 12-18 months, driven by diverse lending activities including infrastructure financing and support for small and medium-sized enterprises.

Challenges and Mitigation

While growth in unsecured retail loans may moderate following regulatory adjustments, NBFCs are poised to maintain their pivotal role in addressing credit needs across India’s economy. The top 20 NBFCs, with established market positions and diversified loan portfolios, are expected to navigate challenges with relative stability, supported by government or corporate ownership which bolsters funding resilience during turbulent periods.