India’s economy is expected to expand at 6.4% in the next fiscal year (FY 2026–27), making it the fastest-growing among G20 nations, according to Moody’s Ratings. The growth outlook is anchored by strong domestic consumption, supportive policy measures, and a stable banking system.
In its latest banking system outlook report, Moody’s highlighted that India’s operating environment for banks is likely to remain robust in 2026, underpinned by favorable macroeconomic conditions and ongoing structural reforms.
Consumption-Led Growth to Drive Momentum
Moody’s noted that domestic demand will continue to be a key growth engine. Measures such as the rationalisation of the Goods and Services Tax (GST) in September 2025 and an earlier increase in personal income tax thresholds are expected to enhance consumer affordability and spending.
“India’s real GDP is projected to grow at 6.4% in FY27, supported by strong consumption trends and policy initiatives,” the agency said.
Lower Than Official Estimates
The projection, however, is slightly below the 6.8%–7.2% growth range outlined in the Finance Ministry’s Economic Survey. As per official data, India is expected to grow at 7.4% in FY 2025–26, an improvement over the 6.5% expansion recorded in FY 2024–25.
Banking Sector Outlook Remains Stable
Moody’s maintained a positive outlook on the banking sector, stating that:
- Asset quality is expected to remain resilient, though some stress may persist in the MSME segment
- Banks have adequate provisions and buffers to absorb potential loan losses
- Capitalisation levels will remain strong, supported by steady internal accruals
The agency also expects loan growth to improve to 11–13% in FY27, compared to 10.6% year-to-date growth in FY26.
Monetary Policy and Inflation Outlook
With inflation largely under control and economic momentum intact, Moody’s indicated that the Reserve Bank of India (RBI) may consider further monetary easing in FY27, but only if there are signs of a slowdown.
The RBI has already reduced the policy rate by 125 basis points to 5.25% in 2025, supporting liquidity and credit growth.
Liquidity and Funding Conditions
The report also underlined that banks’ funding and liquidity positions will remain stable, with credit expansion expected to move in line with deposit growth.
