
Moody’s Ratings, a financial analysis company, has increased its prediction for India’s economic growth this fiscal year (FY24). They now expect the Gross Domestic Product (GDP) to grow by around 8%, up from their previous estimate of 6.6%. This boost is driven by the government’s spending on infrastructure and strong spending by people in the country.
Global Trade Opportunities and Shift from China
India is likely to benefit from increased global trade and investment opportunities as more companies consider moving their operations from China to other countries. Reserve Bank of India (RBI) Governor Shaktikanta Das has expressed optimism about India’s economic growth, suggesting it could surpass the official estimate of 7.6% provided by the National Statistical Office for FY24. He believes that based on various indicators, the growth rate could even approach 8%.
Improved Banking System Outlook
Moody’s report also paints a positive picture for India’s banking system. They expect the operating environment for banks to get better in 2024, thanks to government spending and strong domestic demand. This would support credit growth in Indian banks. Moody’s anticipates an improvement in banks’ asset quality. This is because companies are expected to reduce their debts, and overall credit conditions are healthy. However, there might be an increase in impairments for unsecured retail loans due to their rapid growth alongside rising interest rates.
Stable Outlook for Asia-Pacific Banks
While Moody’s has a stable outlook for the banking systems in the Asia-Pacific region, it holds a negative outlook for the banking systems of China and South Korea.
Factors Affecting Banks in India
Banks in India are expected to maintain sufficient reserves for loan losses. However, they may see a slight decrease in profitability due to declines in net interest margins. Additionally, there might be a slight moderation in capital ratios because of increased risk weightings for exposures to non-banking financial companies and unsecured retail loans.