Moody’s pegs Indian economy’s growth for FY25 at 6.6%

Moody’s Ratings on Tuesday pegged the growth of the Indian economy at 6.6 per cent in the current fiscal year. It said strong credit demand, coupled with the robust economic growth will support the non-bank finance companies (NBFCs) sector’s profitability. 

"We expect India's economy to expand 6.6 per cent in the year ended March 2025 (FY25) and 6.2 per cent the following year, and this will lead to robust loan growth at NBFCs, mitigating the impact of rising funding costs on their profitability," Moody's Ratings said.

The Indian economy is expected to have grown 8 per cent in the 2023-24 fiscal year.

"Funding costs for non-bank finance companies (NBFCs) in India are rising, but strong credit demand fuelled by the country's robust economic growth will support the sector's profitability.

Also, robust economic conditions will help them preserve their asset quality even as rises in interest rates increase the debt burdens of their customers," Moody's said.

INDIA’S GROWTH PREDICTION

Moody’s FY25 GDP growth predictions are lower than the Reserve Bank of India’s (RBI’s), as well as other agencies, but is at par with Deloitte’s forecast.

The RBI had projected a growth of 7 per cent in the current fiscal for the Indian economy. Asian Development Bank (ADB) and Fitch Ratings have estimated growth at 7 per cent each, while S&P Global Ratings and Morgan Stanley expect growth rate to be at 6.8 per cent.

However, Deloitte India estimates the country’s GDP to grow at 6.6 per cent in the current fiscal, driven by consumption expenditure, exports rebound and capital flows. However, it also flagged concerns around inflation and geopolitical uncertainties.

MOODY’S FOCUS ON NBFC

Moody's Ratings has projected a growth of about 15 per cent in loans at NBFCs over the next 12 to 18 months. This growth is expected to be driven by various types of lending, including infrastructure financing by large government-owned NBFCs and loans to small and medium-sized enterprises. 

NBFCs are anticipated to continue their significant role in meeting the credit requirements of individuals and businesses in India's extensive economy. 

"Growth in unsecured retail loans will slow after the RBI raised the risk weight of such credit assets for both banks and NBFCs by 25 percentage points in December 2023," Moody's Ratings said.

The top 20 NBFCs, known for their strong market positions and extensive history of providing specific types of loans like housing or commercial vehicle financing, are mostly owned by the government or large corporate groups. This ownership is expected to provide stability to their funding during stressful times, according to the agency.