Structural reforms, including the rationalisation of the goods and services tax and income tax reductions, are expected to boost domestic consumption, while a stable monetary policy stance should keep financial conditions supportive.
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The outlook reflects a favourable operating environment anchored by steady domestic demand, improving investment activity and broadly stable macroeconomic conditions, which are likely to strengthen business confidence and sustain borrowing appetite across industries.
The RBI, in its latest Monetary Policy Committee (MPC) review, raised its preliminary growth projections for 2026–27, now expecting real GDP to expand 6.9% in the first quarter and 7.0% in the second, up from its earlier forecasts of 6.7% and 6.8%, respectively. The central bank said economic activity is likely to remain resilient into the next financial year, supported by sustained momentum in consumption and investment.
Moody’s expects the strength of the economy to keep financial conditions broadly steady over the next 12–18 months, with stable asset quality indicators and continued resilience in corporate balance sheets. Economic growth at this level also provides room for banks and lenders to maintain healthy capital buffers through internal earnings, even as credit demand rises.
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The rating agency estimates that credit expansion will continue in line with economic activity, supported by stable profitability metrics across the system. Improved liquidity conditions are also anticipated, with deposit growth broadly keeping pace with loan demand.
While the overall GDP outlook remains positive, certain pockets of vulnerability persist. Retail credit trends are expected to remain stable –particularly among prime borrowers — though performance could vary depending on lenders’ underwriting standards and customer profiles.
Operating conditions for micro, small and medium enterprises, especially those linked to exports, are likely to gradually improve following a trade agreement reached between India and the United States in February 2026, reducing the risk of further stress in that segment.
At the same time, competition for deposits is expected to intensify, potentially posing challenges for banks seeking to expand low-cost funding sources.