India is set to remain the fastest-growing major economy in the world next year, according to Moody’s Ratings, even as growth moderates slightly from current levels.
In its latest banking system outlook report released on Monday, the global ratings agency projected that India’s real GDP will expand by 6.4 per cent in fiscal 2026-27, the strongest pace among G-20 nations.
The forecast places India ahead of other major economies, supported by firm domestic consumption, policy reforms and a stable financial system, reported PTI. However, the projection is slightly lower than the 6.8-7.2 per cent growth range estimated by the Finance Ministry’s Economic Survey last month.
Why Moody’s Is Bullish on India
Moody’s attributes its growth forecast primarily to strong domestic consumption and recent policy measures aimed at improving affordability. The rationalisation of the Goods and Services Tax (GST) in September 2025 and an earlier increase in personal income tax thresholds are expected to leave more money in consumers’ hands.
These steps, the agency said, will help strengthen demand-led growth, a crucial pillar of India’s economic resilience in recent years.
The projection also comes against the backdrop of solid economic momentum. As per official estimates, India is likely to grow at 7.4 per cent in the current fiscal (2025-26), an acceleration from the 6.5 per cent recorded in 2024-25.
Although growth is expected to moderate to 6.4 per cent next year, Moody’s sees this pace as healthy and sustainable, particularly when compared with global peers facing slower expansions.
What This Means for the Banking Sector
Beyond macro growth, Moody’s assessment focused heavily on India’s banking system, and the outlook remains largely positive.
The agency said asset quality across the banking system will remain resilient, although some stress could emerge among micro, small and medium enterprises (MSMEs). Even so, banks have built adequate buffers and reserves to absorb potential loan losses.
Corporate loan books are expected to remain healthy, supported by stronger balance sheets and improved profitability among large companies. However, recoveries from previously stressed large corporate loans are likely to taper, as much of that clean-up has already been completed.
In short, the heavy lifting on bad loans appears to be largely behind the sector.
Credit Growth: A Moderate Pickup Expected
Loan growth across the system is projected to accelerate slightly to 11-13 per cent in fiscal 2026-27, up from 10.6 per cent in fiscal 2025-26 year-to-date.
This moderate expansion suggests steady demand for credit without signs of overheating. Importantly, banks’ funding and liquidity positions are expected to remain stable, with deposit growth broadly tracking loan growth.
Moody’s also noted that capital levels across banks will remain strong, supported by internal capital generation that keeps pace with asset expansion.
The agency reiterated that it expects continued government support for banks if needed, reinforcing systemic stability.
RBI Policy: More Easing Only If Needed
With inflation currently under control and economic growth holding up, Moody’s expects the Reserve Bank of India (RBI) to adopt a cautious stance.
The central bank has already reduced its policy rate by a total of 125 basis points to 5.25 per cent in 2025. According to Moody’s, further monetary easing in fiscal 2026-27 would likely occur only if there are signs of a slowdown in economic activity.
In other words, the rate-cut cycle may not deepen unless growth falters materially.
The Broader Economic Picture
India’s operating environment for banks is expected to remain strong through 2026, supported by favourable macroeconomic conditions and structural reforms.
While MSME stress bears watching, the broader corporate sector appears better positioned than in previous cycles. Stronger balance sheets and disciplined lending have improved financial resilience.
The divergence between Moody’s 6.4 per cent projection and the Economic Survey’s higher estimate of 6.8-7.2 per cent reflects differing assumptions rather than alarm. Both forecasts point to India maintaining one of the fastest growth trajectories globally.
For investors and borrowers alike, the takeaway is clear: growth may cool slightly from current highs, but underlying momentum remains intact.
