On Tuesday, Moody's Ratings projected a 6.6% growth rate for the Indian economy in the fiscal year ending March 2025. The prediction attributed the growth to high loan demand and robust economic performance, which will boost the profitability of non-bank finance businesses (NBFCs).
"We expect India's economy to expand 6.6% in the year ended March 2025 (FY25) and 6.2% the following year, and this will lead to robust loan growth at NBFCs, mitigating the impact of rising funding costs on their profitability," stated Moody's Ratings Moody's notes that, despite growing funding costs for NBFCs, strong loan demand fueled by India's economic growth will boost the sector's profitability.
Furthermore, positive economic conditions are projected to assist NBFCs maintain asset quality even as increased interest rates increase their clients' debt loads. In comparison to Moody's forecast, the Reserve Bank of India (RBI) and other institutions predict faster growth.
The RBI, Asian Development Bank (ADB), and Fitch Ratings all forecast 7% growth in FY25, whereas S&P Global Ratings and Morgan Stanley predict 6.8% growth. However, Deloitte India agrees with Moody's, projecting a 6.6% growth rate powered by consumption expenditure, a comeback in exports, and capital flows, albeit with concerns about inflation and geopolitical uncertainty.
Moody's forecasts a 15% increase in NBFC loans over the next 12 to 18 months, owing to infrastructure funding by large government-owned NBFCs and loans to small and medium-sized businesses. Despite the RBI's recent 25 percentage point increase in the risk weight of unsecured retail loans, which is projected to restrict growth in this market, NBFCs will continue to play an important role in lending to individuals and businesses across India.
The top 20 NBFCs, which have strong market positions and a lengthy history of offering specialized types of loans such as mortgages or commercial vehicle financing, are largely owned by the government or large corporations. This ownership is expected to provide stability to their funding during difficult times, according to Moody's.
