Moody’s prediction:
Moody’s Ratings on Tuesday projected the Indian economy to grow by 6.6 percent in the current fiscal year. They noted that strong credit demand, coupled with robust economic growth, will support the profitability of non-bank finance companies (NBFCs).
“We anticipate India’s economy to expand by 6.6 percent in the fiscal year ending March 2025 (FY25) and by 6.2 percent the following year. This growth will drive significant loan growth for NBFCs, offsetting the impact of rising funding costs on their profitability,” Moody’s Ratings stated. The Indian economy is expected to have grown by 8 percent in the 2023-24 fiscal year.
“Although funding costs for NBFCs in India are rising, the strong credit demand driven by robust economic growth will support the sector’s profitability. Additionally, strong economic conditions will help NBFCs maintain their asset quality, despite higher interest rates increasing the debt burdens of their customers,” Moody’s added.
India’s Growth Prediction
Moody’s FY25 GDP growth forecast is lower than the Reserve Bank of India’s (RBI’s) and other agencies’ projections but aligns with Deloitte’s forecast.
The RBI projected a 7 percent growth rate for the current fiscal year. Both the Asian Development Bank (ADB) and Fitch Ratings estimated a 7 percent growth, while S&P Global Ratings and Morgan Stanley anticipated a 6.8 percent growth rate. Deloitte India forecasted a 6.6 percent growth rate, driven by consumption expenditure, export rebound, and capital flows, while also highlighting concerns about inflation and geopolitical uncertainties.
Moody’s Focus on NBFCs
Moody’s Ratings forecasted a growth of about 15 percent in loans for 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 expected to continue playing a crucial role in meeting the credit needs of individuals and businesses across India’s extensive economy.
“Growth in unsecured retail loans will slow following the RBI’s December 2023 decision to increase the risk weight of such credit assets for both banks and NBFCs by 25 percentage points,” Moody’s Ratings explained. The top 20 NBFCs, known for their strong market positions and history in specialized lending areas such as housing or commercial vehicle financing, are largely owned by the government or major corporate groups. This ownership is expected to provide stability to their funding during stressful times, according to Moody’s.
