India's GDP to expand at 6.6% in FY25; will fuel NBFCs' growth: Moody’s.

Moody's Ratings stated on Tuesday that the Indian economy is projected to grow 6.6% in FY 2025 and 6.2% the following year. This robust economic growth is expected to drive strong credit demand and support the profitability of non-banking finance companies (NBFCs) in India. Previously, the Indian economy was estimated to have expanded by 8% in the 2024 fiscal year. Moody's noted that this strong economic condition will help NBFCs preserve their asset quality, even as rising interest rates increase the debt burdens of their customers.

Funding costs for NBFCs are rising, but the country's robust economic growth is fuelling strong credit demand, which will support the sector's profitability. Additionally, the favourable economic conditions will enable NBFCs to maintain their asset quality, despite the increased debt burdens faced by their customers due to rising interest rates.

Aggregate year-on-year loan growth at NBFCs accelerated to 20.8% in September 2023, up from 10.8% a year earlier. This was driven by increased demand for retail loans, including financing for housing and automobiles. Moody's Ratings expects loans at NBFCs to grow around 15% in the next 12-18 months, driven by various lending activities, such as infrastructure financing by large government-owned NBFCs and loans to small and medium-sized enterprises.

However, Moody's noted that the growth in unsecured retail loans will slow after the Reserve Bank of India (RBI) raised the risk weight of such credit assets for both banks and NBFCs by 25 percentage points in December 2023. Despite the challenges, Moody's stated that NBFCs will continue to play a crucial role in meeting the credit needs of individuals and businesses in India's vast economy. The largest 20 NBFCs have strong market positions and long histories of providing specific types of loans, such as financing for housing or commercial vehicles.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.