India's GDP growth projected to surpass 6.5% in FY26: Moody's Ratings

Projecting a stable outlook for the banking sector in its ‘Banking System Outlook—India report’ released recently, the credit rating agency said although the operating environment of Indian banks will remain favourable in FY26 , their asset quality will moderately deteriorate after substantial improvements in recent years, with some stress in unsecured retail loans, microfinance loans and small business loans.

Banks’ profitability will remain adequate as declines in net interest margins are likely to be marginal amid modest rate cuts, it noted.

Following a temporary slowdown in mid-2024, the country’s economic growth is expected to reaccelerate and record one of the fastest rates among large economies globally, Moody’s said.

The finance ministry’s Economic Survey has projected a FY26 GDP growth of 6.3-6.8 per cent. The government estimates GDP growth in this fiscal to be 6.5 per cent.

Moody’s expects India’s average inflation rate to decline to 4.5 per cent in FY26 from 4.8 per cent in FY25.

“We expect further rate cuts to be modest, as the central bank takes a cautious stance amid global uncertainty around US trade policies, as well as associated market and exchange rate volatility, as represented by a strengthening of the US dollar against emerging market currencies in late 2024 and early 2025," Moody’s added.

ALCHEMPro News Desk (DS)