Moody’s Ratings has projected India’s economy to expand by 6.4% in FY2026–27, marking the fastest growth rate among G20 economies, underpinned by resilient domestic consumption, policy reforms and a stable banking system.
In its latest banking system outlook released on Monday, the global ratings agency said India’s operating environment for lenders would remain strong through 2026, supported by robust macroeconomic fundamentals and ongoing structural changes.
“We forecast India’s real GDP will grow 6.4% in fiscal 2026–27, the fastest pace among G20 economies, driven by strong domestic consumption and policy measures,” Moody’s said.
The agency highlighted the rationalisation of the goods and services tax (GST) in September 2025 and the earlier increase in personal income tax thresholds as key steps that have improved consumer affordability and bolstered demand-led growth.
Moody’s estimate, however, trails the Finance Ministry’s Economic Survey projection of 6.8%–7.2% for FY27. Official data indicate that India is likely to record a stronger 7.4% growth in the current fiscal (2025–26), compared with 6.5% in 2024–25.
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On the banking front, Moody’s said asset quality is expected to remain resilient, though some stress may persist in the micro, small and medium enterprises (MSME) segment. Despite this, lenders are seen as well positioned to absorb potential loan losses, backed by adequate capital buffers.
The ratings firm also projected system-wide loan growth to edge up to 11%–13% in FY27, from 10.6% in FY26 year-to-date, driven by steady demand across retail and corporate segments.
“Corporate loan quality will remain healthy, supported by strong balance sheets and improved profitability among large companies,” Moody’s said, adding that recoveries from stressed assets are likely to taper as banks have largely resolved legacy problem loans in the corporate sector.
According to the report, Indian banks are expected to maintain strong capitalisation, supported by internal capital generation that keeps pace with asset growth. Funding and liquidity conditions are also likely to remain stable, with credit expansion broadly aligned with deposit growth.
Moody’s reiterated its expectation of continued government support for the banking sector during periods of stress, a factor it said underpins confidence in the system’s overall stability.
On the monetary policy outlook, the agency noted that with inflation under control and growth momentum holding firm, the Reserve Bank of India (RBI) is unlikely to ease rates further in FY27 unless there are clear signs of an economic slowdown.
The RBI has already cut its policy rate by a cumulative 125 basis points to 5.25% during 2025, providing a boost to credit demand and investment activity.
Economists say Moody’s assessment reinforces India’s position as one of the world’s fastest-growing major economies, even as global growth remains uneven amid geopolitical tensions and tighter financial conditions in advanced markets.
They also point out that sustained reforms, infrastructure spending and rising household consumption will be critical to maintaining the growth trajectory, particularly as private sector investment gradually gathers pace.
With banks entering FY27 on stronger balance sheets and improved profitability, Moody’s expects the sector to play a central role in supporting India’s next phase of economic expansion.
About the author – Ayesha Aayat is a law student and contributor covering cybercrime, online frauds, and digital safety concerns. Her writing aims to raise awareness about evolving cyber threats and legal responses.
