Indian economy to grow at 6.5-7% annual rate through 2027 on increased infrastructure spending: S&P

S&P Global Ratings on November 14 forecasted that the Indian economy will grow at an annual rate of 6.5-7 percent over the next three fiscal years, through March 2027. This growth is expected to be driven primarily by increased infrastructure spending and strong private consumption. 

In its latest global bank outlook report, S&P also noted that India’s positive economic outlook will continue to support the asset quality of banks. It highlighted that healthy corporate balance sheets, stricter underwriting standards, and improved risk management practices will contribute to further stabilisation in asset quality. 

S&P emphasised that India’s ongoing structural improvements, along with favourable economic conditions, will help bolster the resilience of the country’s financial institutions. 

“We expect India’s infrastructure spending and strong private consumption to drive robust economic growth. We forecast GDP growth at 6.5-7.0 percent annually for the fiscal years 2025-2027 (ending March 31). India’s solid economic prospects will support the asset quality of banks,” S&P stated. 

For the current fiscal year, the Reserve Bank of India (RBI) has projected economic growth of 7.2 percent, which is lower than the 8.2 percent growth rate in 2023-24. The RBI noted that higher demand and stronger bank capitalization would fuel loan growth, though deposit growth may lag behind. 

“We expect the banking sector’s weak loans to decline to around 3 percent of gross loans by March 31, 2025, down from an estimated 3.5 percent as of March 31, 2024. This improvement is expected due to healthy corporate balance sheets, stricter underwriting standards, and better risk management practices,” the RBI said. 

S&P also pointed out that corporate borrowing has gained momentum, but external uncertainties could delay capital expenditure-related growth. In addition, deposits may struggle to keep pace with loan demand, potentially weakening the credit-to-deposit ratio. Despite these challenges, the overall funding profiles of banks are expected to remain strong. 

Retail loan underwriting standards in India are currently healthy, and delinquency rates in this sector are manageable. However, S&P warned that the rapid growth in unsecured personal loans could lead to a rise in nonperforming loans in the future. 

The US-based rating agency also observed that the RBI is increasingly focusing on technology, compliance, customer complaints, data privacy, governance, and know-your-customer (KYC) issues. As a result, the RBI has been imposing stricter penalties on banks. 

“We believe that increased transparency will strengthen compliance and governance practices, reducing the likelihood of excessive risk-taking by lenders. However, this will also increase compliance costs. As a result, investors in the financial sector may demand a higher premium to account for the increased regulatory risks stemming from the potential for stricter penalties,” S&P concluded.