Wed Mar 12 10:54:29 UTC 2025: ## Moody’s Predicts Robust Indian Economic Growth, Cautions on Bank Asset Quality

**New Delhi, [Date]** – Moody’s Investors Service forecasts India’s economic growth to surpass 6.5% in the fiscal year 2025-26, fueled by increased government spending, tax cuts, and lower interest rates. This represents an upgrade from the projected 6.3% growth for the current fiscal year (2024-25).

While Moody’s projects a stable outlook for the Indian banking sector, it anticipates a moderate deterioration in asset quality, particularly in unsecured retail, microfinance, and small business loans, despite recent improvements. Profitability, however, is expected to remain adequate, with only marginal declines in net interest margins due to modest interest rate reductions.

The projected growth follows a temporary slowdown mid-2024, and positions India as one of the fastest-growing major economies globally. Moody’s attributes the strong growth to government capital expenditure, consumption boosts from tax cuts targeting the middle class, and monetary easing. This forecast is slightly more optimistic than the Indian finance ministry’s projection of 6.3-6.8% growth for the next fiscal year.

Moody’s anticipates inflation to ease to 4.5% in 2025-26 from 4.8% in the previous year. This follows the Reserve Bank of India’s (RBI) policy rate adjustments, which saw a 250 basis point increase from May 2022 to February 2023 to combat inflation, and a subsequent 25 basis point reduction to 6.25% in February 2025. Further rate cuts are expected to be modest, reflecting a cautious approach by the RBI given global uncertainties.

Loan growth is projected to slow to 11-13% in 2025-26, down from an average of 17% between March 2022 and March 2024, as banks align loan growth with deposit expansion.

Read More