GDP growth at 6.4%! India will continue as fastest G-20 economy; banking sector to remain resilient in FY27

India is on track to continue as the fastest-growing economy among G-20 nations in the upcoming financial year. The country's real GDP expected to expand by 6.4% in fiscal 2026-27, according to a recent report by Moody’s Ratings. The brokerage also predicted that over the next 12-18 months, banking sector will remain stable, thaks to this supportive economic environment.

According to Moody's banks qill be able to sustain steady and resilient performance, supported by solid asset quality, strong capital, healthy profitability, ample liquidity and government support.

Here are a few key drivers for banking growth in the country:

Improving asset quality: Asset quality is expected to remain broadly stable, with the systemwide non-performing loan (NPL) ratio staying low at 2% to 2.5%. Corporate loans, in particular, are likely to continue performing well. According to Moody’s, low NPL levels are supported by steady economic growth and relatively low borrower leverage. Furthermore, corporate asset quality is also holding strong.

Loan quality: Retail and MSME loan quality should remain stable, though outcomes may vary “to some extent among lenders based on underwriting standards and target borrower groups.”

Macroeconomic environment: The brokerage noted that structural steps, including the rationalisation of the goods and services tax and cuts to income tax, should encourage domestic consumption. Monetary policy, it added, is likely to stay steady, with financial conditions supportive. Moody’s said that after the trade deal reached by India and the United States in February 2026, operating conditions for export-oriented micro, small and medium enterprises are likely to improve gradually, reducing the chance of additional stress.
Strong capitals: Capital levels are anticipated to remain firm. Internal accruals are expected to match capital consumption and comfortably fund loan expansion of 11% to 13%, with ratios already well above regulatory minimums.

Profits: Earnings performance is unlikely to see sharp swings. Moody’s expects return on assets to hover around 1.2% to 1.3%. The brokerage further expects net interest margins to widen slowly as banks incorporate the rate cuts of 2025 into deposit rates.

Loan-loss provisioning: Moody’s expects loan-loss provisioning to settle after rising from historically low levels. Floating provisions, however, will rise as banks prepare for the transition to the IFRS 9 expected credit loss (ECL) framework. Loans and deposits are projected to grow together, keeping the systemwide loan-to-deposit ratio near 80%.

Funding: In terms of resources, the ratings brokerage believes credit and deposit growth will broadly move together, leaving the loan-to-deposit ratio close to 80%. Liquidity should remain adequate under prevailing regulatory norms.

Government support: Moody’s also pointed to continued state backing. It expects the government to extend a very high degree of support to public sector banks, while the extent of assistance for private lenders would depend on their systemic importance.

However, one challenge flagged in the report is the battle for deposits as obilising funds, especially in low-cost current and savings accounts, may prove difficult amid intensifying competition.