India’s real GDP growth is projected at 6.4% in 2026–27, making it the fastest-growing major economy in the G-20, Moody’s Ratings said on Monday, adding that the economic momentum underpins a stable outlook for its banking system.
Moody’s growth estimate for FY27 is lower than the 6.8-7.2% projected in the latest Economic Survey by the finance ministry economists.
Moody’s said growth will continue to be driven by resilient domestic consumption, supportive fiscal measures, and macroeconomic stability. This backdrop provides a favorable operating environment for banks, reinforcing balance-sheet strength, credit expansion, and profitability.
“The rationalization of the goods and services tax (GST) in September 2025 and an earlier increase in personal income tax thresholds will help improve affordability for consumers and support consumption-led growth,” Moody’s said.
The Reserve Bank of India (RBI) lowered its policy rate by a total of 125 basis points to 5.25% in 2025, but with inflation under control and growth momentum remaining strong, “we anticipate it will further ease monetary policy in fiscal 2026-27 only if there are signs of a slowdown in economic activity,” it said.
Systemwide loan growth projected to accelerate in fiscal 2026–27
It projected systemwide loan growth to accelerate slightly to 11%–13% in fiscal 2026–27 from 10.6% in fiscal 2025-26 year to date.
Banks’ asset quality will remain broadly stable. “We expect the systemwide nonperforming loan (NPL) ratio to stay low at 2%–2.5%, although the slippage ratio may rise modestly as loan vintages season,” it said. Retail asset quality will remain steady, particularly among prime borrowers, though performance will diverge across lenders depending on underwriting standards and borrower mix.
Stress will be concentrated among micro, small and medium enterprises (MSMEs), especially in export-oriented sectors such as textiles and gems and jewellery, which together account for less than 5% of systemwide loans. Higher US tariffs announced in August 2025 initially weighed on these segments, but following the India–U.S. trade deal in February 2026, operating conditions should gradually normalize, it said.
Impact of India–EU trade agreement
While an India–EU trade agreement could open new markets over time, its near-term impact will be limited. Banks have built adequate loan-loss buffers to absorb potential stress.
Corporate asset quality will remain healthy, supported by strong balance sheets and improved profitability, although recoveries will taper as legacy large corporate stress has largely been resolved.
Capitalisation will remain robust, supported by internal capital generation broadly in line with asset growth. Systemwide assets are expected to grow at 11%–13% in fiscal 2026–27, allowing banks to maintain capital ratios well above regulatory minima. Equity raisings in recent years have further strengthened buffers, limiting scope for further improvement, Moody’ said.
The phased adoption of IFRS 9 expected credit loss (ECL) norms from April 2027 is expected to reduce capital ratios by a moderate 50–75 basis points over four years. The transition to final Basel III norms in 2027 should be broadly capital-neutral, as lower risk weights for MSME and residential mortgage loans are likely to offset higher requirements for unsecured lending and capital market exposures, it said.