India’s GDP to grow 6.5-7 pc through FY27 over infra, consumption push: Report

India's GDP will grow 6.5-7 per cent annually during the next three fiscal years, or from fiscal 2025-2027, and the country's decent prospects for economic growth will continue to underpin banks' asset quality, a new report said.

Private consumption and infrastructure spending will support robust economic growth in India, S&P Global Ratings said in its latest global bank outlook report.

Structural improvements and good economic prospects would support the resilience of India's financial institutions, stronger bank capitalisation should boost higher demand to bank loan growth, and the RBI's regulatory clampdown will strengthen the financial system in the medium term, the report said.

The growth story of India remains intact, as its fundamental drivers -- consumption and investment demand -- are picking up, RBI Governor Shaktikanta Das said last month. He also forecast the country's real GDP growth at 7.2 per cent for FY 2024-25.

The report states that the weak loans of Indian banking sector would decline to about 3.0 per cent of gross loans by March 31, 2025 "from our estimate of 3.5 per cent as of March 31, 2024".

This is on the back of healthy corporate balance sheets, tighter underwriting standards, and improved risk-management practices. We believe underwriting standards for retail loans in India are healthy, and delinquencies in this segment remain manageable," it added.

Corporate borrowing has gained momentum, but external uncertainties could delay capital expenditure-related growth, according to the report.

It has been the central bank that has constantly been becoming quite vocal and imposing heavy penalties. Matters are heavily focusing on technology, compliance, customer complaints, data privacy, governance, and know-your-customer issues.

"We believe increased transparency will enhance compliance and governance practices and curtail lenders' over-exuberance, but compliance costs will rise. Investors in the financial sector may seek a higher premium for the increased regulatory risk stemming from the potential for tighter penalties," the report said.

However, "we expect loan growth to be slightly higher than nominal GDP with retail loans expanding the fastest. Corporate borrowing has gained momentum," it added.