New Delhi: India’s GDP will expand 6.5-7 per cent annually in the next three fiscal years (2025-2027), and the country’s good economic growth prospects will continue to support banks’ asset quality, according to a new report.
India’s infrastructure spending and private consumption will support robust economic growth, said S&P Global Ratings in its latest global bank outlook report.
“Structural improvements and good economic prospects will support the resilience of India’s financial institutions, higher demand coupled with stronger bank capitalisation should boost bank loan growth and the RBI’s regulatory clampdown will strengthen the financial system in the medium term,” the report mentioned.
India’s growth story remains intact as its fundamental drivers – consumption and investment demand – are gaining momentum, RBI Governor Shaktikanta Das said last month, adding that the country is likely to see real GDP growth at 7.2 per cent for FY 2024-25.
According to the report, Indian banking sector’s weak loans will decline to about 3.0 per cent of gross loans by March 31, 2025, “from our estimate of 3.5 per cent as of March 31, 2024”.
“This is on the back of healthy corporate balance sheets, tighter underwriting standards, and improved risk-management practices. We believe underwriting standards for retail loans in India are healthy, and delinquencies in this segment remain manageable,” it added.
The report pointed out that corporate borrowing has gained momentum, but external uncertainties could delay capital expenditure-related growth.
The central bank is becoming more vocal and imposing heavy penalties. It is heavily focusing on technology, compliance, customer complaints, data privacy, governance, and know-your-customer issues.
“We believe increased transparency will enhance compliance and governance practices and curtail lenders’ over-exuberance, but compliance costs will rise. Investors in the financial sector may seek a higher premium for the increased regulatory risk stemming from the potential for tighter penalties,” said the report.
“We expect loan growth to be slightly higher than nominal GDP, with retail loans expanding the fastest. Corporate borrowing has gained momentum,” it added.
