S&P Global Ratings forecast on November 14 that the Indian economy would grow at an annual rate of 6.5% to 7% over the next three fiscal years through March 2027. This growth is expected to be mainly driven by increased government spending. infrastructure and strong private consumption.

In its latest Global Bank Outlook report, S&P also noted that India’s positive economic outlook will continue to support banks’ asset quality. He stressed that healthy corporate balance sheets, stricter underwriting standards and improved risk management practices will contribute to greater stabilization of asset quality.

S&P highlighted that ongoing structural improvements in India, along with favorable economic conditions, will help strengthen the resilience of the country’s financial institutions.

“We expect India’s infrastructure spending and strong private consumption to generate robust economic growth. We forecast GDP growth of 6.5% to 7.0% per year for fiscal years 2025 to 2027 (ending March 31). India’s strong economic outlook will support banks’ asset quality,” S&P said.

For the current financial year, the Reserve Bank of India (RBI) forecasts economic growth of 7.2 per cent, which is lower than the growth rate of 8.2 per cent in 2023-24. The RBI noted that higher demand and stronger bank capitalization would fuel loan growth, although deposit growth could lag behind.

“We expect weak loans in the banking sector to decline to approximately 3% of gross loans by March 31, 2025, from an estimated 3.5% as of March 31, 2024. This improvement is expected due to healthy balance sheets of banks. companies and stricter underwriting standards. , and better risk management practices,” the RBI said.

S&P also noted that corporate borrowing has gained momentum, but external uncertainties could delay growth linked to investment spending. Additionally, deposits may struggle to keep pace with loan demand, which could weaken the credit-to-deposit ratio. Despite these challenges, banks’ overall funding profiles are expected to remain strong.

Retail loan underwriting standards in India are currently healthy and delinquency rates in this sector are manageable. However, S&P warned that rapid growth in unsecured personal loans could lead to an increase in non-performing loans in the future.

The US-based rating agency also observed that the RBI is increasingly focusing on issues of technology, compliance, customer complaints, data privacy, governance and know your customer (KYC). ). As a result, the RBI imposed stricter sanctions on banks.

“We believe increased transparency will strengthen compliance and governance practices, reducing the likelihood of excessive risk-taking by lenders. However, this will also increase compliance costs. As a result, financial sector investors may demand a higher premium to account for increased regulatory risks resulting from potential stricter sanctions,” S&P concluded.