November 15th 2024.
India's economic outlook looks bright in the next three fiscal years, with a projected GDP growth of 6.5-7 percent annually, according to a new report. This growth is expected to be supported by the country's strong infrastructure spending and private consumption, as stated by S&P Global Ratings in their latest global bank outlook report.
The report also highlights the positive impact of structural improvements and India's overall economic prospects on the resilience of its financial institutions. It predicts a boost in bank loan growth and stronger bank capitalization, thanks to a higher demand for loans. Additionally, the regulatory actions taken by the Reserve Bank of India (RBI) are expected to further strengthen the country's financial system in the near future.
RBI Governor Shaktikanta Das has also expressed confidence in India's growth story, stating that the country's fundamental drivers of consumption and investment demand are gaining momentum. He predicts a real GDP growth of 7.2 percent for the fiscal year 2024-25.
The report also predicts a decline in India's weak loans to about 3.0 percent of gross loans by March 31, 2025, from the current estimate of 3.5 percent. This is due to the healthy corporate balance sheets, tighter underwriting standards, and improved risk-management practices. The report also notes that retail loans in India have healthy underwriting standards and manageable delinquencies.
Despite the positive outlook, the report also highlights potential external uncertainties that could delay capital expenditure-related growth. To mitigate these risks, the central bank is taking a more proactive approach by imposing heavy penalties and focusing on areas such as technology, compliance, customer complaints, data privacy, governance, and know-your-customer issues.
The report predicts that increased transparency will lead to better compliance and governance practices, but it also expects compliance costs to rise. As a result, investors in the financial sector may ask for a higher premium to account for the increased regulatory risk. Additionally, the report expects loan growth to slightly exceed nominal GDP, with retail loans experiencing the fastest growth, while corporate borrowing has already gained momentum.
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