Moody’s forecasts 6.6% growth for FY25

In line with the optimism expressed about the Indian economy by the International Monetary Fund (IMF), World Bank, and the Asian Development Bank (ADB), Moody's Ratings has pegged the growth rate at 6.6 per cent in the current fiscal.

The forecast is predicated upon strong credit demand and robust economic performance. “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 [non-bank finance companies], mitigating the impact of rising funding costs on their profitability,” Moody’s Ratings said.

Despite the fact that funding costs for NBFCs are rising, the vigorous credit demand driven by economic growth will bolster the sector’s profitability. Further, favorable economic conditions are expected to help NBFCs maintain asset quality even as higher interest rates increase the debt burdens of their customers.

Other forecasts, however, are higher than that of Moody’s. The RBI, Asian Development Bank (ADB), and Fitch Ratings each estimate a 7 per cent growth rate for 2024-25, while S&P Global Ratings and Morgan Stanley predict a 6.8 per cent growth rate.

Moody’s also projects a 15 per cent growth in loans at NBFCs over the next 12 to 18 months, driven by infrastructure financing by large government-owned NBFCs and loans to small and medium-sized enterprises.

Despite the RBI’s recent increase in the risk weight of unsecured retail loans by 25 percentage points, which is expected to slow growth in this segment, NBFCs will continue to play a crucial role in providing credit to individuals and businesses across India.

The top 20 NBFCs, which have strong market positions and a long 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 anticipated to offer stability to their funding during challenging times, according to Moody's.