Moody’s Pegs Indian Economy Growth at 6.6% for FY25

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Moody’s Ratings has projected the growth of the Indian economy at 6.6% for the current fiscal year, ending March 2025. The firm emphasized that strong credit demand and robust economic growth will bolster the profitability of the non-bank finance companies (NBFCs) sector.

“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 stated.

The Indian economy is estimated to have grown 8% in the 2023-24 fiscal year.

Rising Funding Costs and Economic Conditions

Moody’s highlighted that the rising funding costs for NBFCs will be offset by strong credit demand due to India’s robust economic growth. “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 slightly lower than the Reserve Bank of India’s (RBI) and other agencies’ estimates but align with Deloitte’s forecast.

The RBI had projected a growth of 7% for the current fiscal year. Similarly, the Asian Development Bank (ADB) and Fitch Ratings estimated growth at 7%, while S&P Global Ratings and Morgan Stanley expected a 6.8% growth rate.

Deloitte India forecasted a 6.6% GDP growth, driven by consumption expenditure, an export rebound, and capital flows, while also flagging concerns around inflation and geopolitical uncertainties.

Moody’s Focus on NBFC

Moody’s Ratings has projected a 15% growth 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 expected to continue playing a significant role in meeting the credit requirements of individuals and businesses across 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 noted.

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