Strong domestic consumption, policy measures, and a stable banking system will drive India's GDP to grow at 6.4%—the fastest among G-20 countries—in the next fiscal, global credit rating agency Moody's said on Monday.

“We forecast India’s real GDP will grow 6.4% for fiscal 2026–27, the fastest pace among G-20 economies, driven by strong domestic consumption and policy measures. The rationalisation 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 in its banking system outlook report.

However, the Moody’s estimate is slightly below the 6.8%–7.2% growth projected in the government’s latest Economic Survey.

Strong show by the banking sector

Moody’s said the asset quality in the banking sector will remain strong, although some stress could be seen among micro, small, and medium enterprises (MSMEs). It added that banks have enough reserves to absorb any loan losses.

The report said the operating environment for banks will stay favourable in 2026, backed by healthy macroeconomic conditions and ongoing structural reforms.

The rating agency said that with inflation under control and growth remaining strong, it expects the Reserve Bank of India (RBI) to ease monetary policy in FY27 only if there are clear signs of a slowdown in economic activity.

In 2025, the RBI had cut its policy rate by 125 basis points to 5.25%.

Moody’s expects overall loan growth across the banking system to rise slightly to 11–13% in FY27, compared with 10.6% recorded so far in FY26.

“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 corporates,” Moody’s said.

Banks continue to maintain strong capital levels

It added that banks will continue to maintain strong capital levels, supported by internal capital generation that matches asset growth. Funding and liquidity conditions are expected to remain stable, with loan growth broadly in line with deposit growth.

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

(With PTI inputs)