India’s banks, NBFCs well-placed to ride economic growth: Moody’s

India’s banks and non-bank finance companies (NBFCs) are “well placed to seize opportunities from the country’s strong economic prospects through higher lending in sectors such as infrastructure, energy transition, manufacturing, small businesses and retail”, according to a new report from Moody’s and its Indian subsidiary ICRA Ratings.

“Banks and non-bank finance companies (NBFCs) are well placed to seize opportunities from the country’s strong economic prospects through higher lending in sectors such as infrastructure, energy transition, manufacturing, small businesses and retail. The system wide credit quality has strengthened over the past three-four years which has seen in the record-high profitability, low delinquencies and stable domestic-oriented funding, underpinning their stable credit ratings,” says the report.

The report adds that the country’s financial system has witnessed improvement in credit quality, with record profitability of more than Rs 3 trillion in the fiscal year 2023-’24 (FY24).

STRONG LOAN GROWTH

India could see a loan growth of 12 to 14 per cent over the next 12 to 15 months, the report predicts, though system-wide net interest margins are likely to soften what with banks allotting higher rates to maturing deposits. The system-wide return on assets would, however, continue being robust and the capitalisation of banks would remain stable.

ROBUST BANKING SECTOR

Moody’s predicts the banking sector to continue performing strongly, with a solid credit environment and loan growth ensuring profitability. Credit growth of Indian banks will be driven by the evolution of deposit growth and systemic liquidity even as demand remains strong. Despite a moderation in growth, credit would see the banking sector’s second highest increase ever, at around Rs 19-20.5 trillion in FY25.

Asset quality would continue improving, the report says, with net non-performing assets (NPAs) and gross non-performing advances dropping to their lowest levels in more than a decade. While NPAs would register a fall from 0.64 per cent, as recorded in March 2024, to 0.55 per cent in March 2025, the drop in gross non-performing advances for the same period would be from 2.81 per cent to 2.30 per cent.

NBFC ON TRACK

There will be a moderation in the overall growth of the NBFC sector, the report says, more so the non-mortgage retail loan segment. This would be an outcome of the high growth rates over the past two financial years.

The growth in the categories of personal loan and consumption loan in the current financial year would be muted after the steep rate in which these segments grew over the past two financial years.

NBFC-controlled assets, barring housing finance and infrastructure finance, would see a growth rate of 17 per cent to 19 per cent in FY25, although the rate would be muted.

In the corporate sector, the credit rate would remain steady in the wake of stable interest rates and easing inflation. The sector, according to Moody’s, can withstand additional debts. The corporate sector has reduced debt from 72 per cent to 55 per cent of GDP in the last 10 years, the report noted.