Bharat’s economic growth prospects remain strong over
the medium term, with its gross domestic product or GDP likely to expand between
6 per cent and 7.1 per cent annually in 2023-24 (FY24) through 2025-26, stated S&P
Global in its latest report on Thursday.
“Economic growth momentum to continue. India’s
economic growth prospects should remain strong over the medium term, with GDP
expanding 6-7.1 per cent annually in 2024-2026,” said S&P.
Besides, the report by the global credit rating agency
mentioned that weak loans in the banking sector will likely drop to 3 to 3.5
per cent of gross advances by the end of 2024-25 (FY25).
This improvement is attributed to structural
enhancements like healthy corporate balance sheets, tighter underwriting
standards, and improved risk-management practices.
Furthermore, the report stressed upon that interest
rates in Bharat are unlikely to rise significantly, limiting the risk for the
banking industry. Global uncertainties are expected to have a lesser impact on
the Indian economy.
“Unsecured personal loans have grown rapidly and could
contribute to incremental non-performing loans. We believe underwriting
standards for retail loans generally remain healthy, and the overall level of
delinquencies remains within acceptable limits for this product category,” said
S&P Primary Credit Analyst Deepali Seth Chhabria.
Given Bharat’s domestic orientation, the credit rating
agency expects economic growth to be less impacted by sluggish global growth
and external demand. However, the agency warns that this could fuel inflation.
The report noted that State Bank of India and the
leading private-sector banks have largely dealt with their asset-quality
challenges.
“Many public-sector banks still carry relatively high
volumes of weak assets, which will result in higher credit losses and hit
profitability; their performance lags that of the industry’s,” it added.
Earlier this week, Morgan Stanley forecasted the
Indian economy to grow at around 6.5 per cent for FY24 and FY25, citing strong
domestic fundamentals.
Domestic demand is being backed by strength in
corporate and financial sector balance sheets and the follow-through of policy
reform measures amid a global slowdown.
However, any surprise outcome in the upcoming general
elections could have implications for growth and macroeconomic stability.
“A strong political mandate supporting reform measures
alongside improvement in external demand would drive faster growth,” it said.
Similarly, last week, Fitch Ratings, in its latest
Global Economic Outlook, stated that the Indian economy has the probability to
clock a 6.2 per cent annual average growth rate in the medium term during the
2019-27 period.
This potential growth is mainly due to an improved
employment rate and a better working-age population forecast.
This increased potential forecast for the Indian
economy comes amid a downward revision by the global credit rating agency of
the medium-term growth potential for 10 emerging economies to 4 per cent from
4.3 per cent calculated earlier, primarily driven by a cut in China’s growth
outlook.
NE Watch Desk
