Moody’s Ratings on Monday projected India’s GDP growth at 6.4 per cent in the next fiscal, the fastest among G-20 economies, supported by strong domestic consumption, policy initiatives and a stable banking system.

In its banking system outlook report, Moody’s said asset quality across banks will remain resilient, although some stress is expected among micro, small and medium enterprises (MSMEs). It added that banks have adequate buffers to absorb potential loan losses.

According to the report, the operating environment for banks will stay favourable in 2026, backed by robust macroeconomic conditions and ongoing structural reforms.

“We forecast India's real GDP will grow 6.4 per cent for fiscal 2026-27, the fastest pace among G-20 economies, driven by strong domestic consumption and policy measures.

“The rationalization of the goods and services tax (GST) in September 2025 and an earlier increase in personal income tax thresholds will help improve affordability for consumers and support consumption-led growth,” Moody's said.

Moody’s projection for FY27 GDP growth is lower than the 6.8–7.2 per cent range estimated in the Finance Ministry’s Economic Survey tabled in Parliament last month.

Official estimates indicate that India is expected to grow at a faster rate of 7.4 per cent in the current fiscal year 2025-26, compared with 6.5 per cent growth recorded in 2024-25.

Moody’s said that with inflation under control and growth momentum intact, it expects the Reserve Bank of India (RBI) to further ease monetary policy in fiscal 2026-27 only if there are clear signs of an economic slowdown.

The RBI has already reduced its policy rate by a cumulative 125 basis points to 5.25 per cent in 2025.

Moody’s also expects system-wide loan growth to edge up to 11–13 per cent in fiscal 2026–27, from 10.6 per cent in fiscal 2025-26 year-to-date.

“Corporate loan quality will remain healthy, supported by strong balance sheets and improved profitability among large companies. Recoveries will taper as banks have resolved stressed loans to large corporate,” Moody's said.

The ratings agency further noted that banks will maintain strong capitalisation, supported by internal capital generation in line with asset growth. Funding and liquidity conditions are expected to remain stable, with loan growth broadly matching deposit growth.

“We continue to expect the government to provide strong support for banks in times of need,” Moody's added.