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Informist, Tuesday, Oct. 6, 2026

 

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--S&P Global: Energy imports, inflation remain challenges for Indian economy 
--CONTEXT: Comments from S&P Global officials in a webinar 
--S&P Global: Capital outflows remain a challenge for India econ outlook 
--S&P Global: Expect no significant change in monetary policy 
--S&P Global: Expect further depreciation pressure on rupee 
--S&P Global: Expect FY27 industrial credit growth 12-14% 

 

MUMBAI – S&P Global expects India's economic growth to remain resilient but said higher energy costs, inflation, and capital outflows pose key challenges to the country's economic outlook amid geopolitical crises and tighter global financial conditions. India's heavy dependence on energy imports is a particular concern, as higher global energy prices are likely to widen the current account burden and increase input costs for companies, S&P Global officials said at a webinar.

 

The rise in producer prices is squeezing corporate margins, particularly for small- and medium-sized enterprises, as firms may not be able to immediately pass higher costs on to consumers. "Capital outflows are still a factor affecting exchange rates and external funding conditions," an S&P Global official said, adding that these remain a challenge for the economic outlook as well as the rupee. The rating agency expects further depreciation pressure on the Indian currency, given the higher global interest rate environment. 

 

S&P Global expects India's GDP to grow 7% in the current financial year, slower than the 7.8% growth recorded in the June quarter. It expects growth to remain relatively resilient over the medium term, supported by steady domestic demand.

 

On monetary policy, S&P Global expects only limited changes, with the central bank likely to remain mindful of supply-side inflation pressures while supporting domestic demand. The agency said it expects a slight tightening of interest rates during the year but does not foresee any significant change in the monetary policy stance.

 

Food inflation is another concern, with S&P Global flagging the risk of weaker agricultural output and higher food prices amid El Nino-related disruptions. The agency expects such pressures to weigh on consumers and keep up the pressure on the central bank to maintain a relatively tighter policy stance. 

 

CREDIT GROWTH

S&P Global expects credit growth in the industrial sector to remain in the 12–14% range in the financial year ending March. Growth has moderated over the past two years as banks and non-banking financial companies tightened underwriting standards for unsecured loans, personal loans, and microfinance following higher non-performing loans in some segments.

 

The agency expects the shift towards secured lending to continue, with gold loans recording strong growth from a relatively small base. Corporate loan demand is also improving, particularly from infrastructure-related sectors, while some companies are shifting from capital markets to bank funding to take advantage of relatively attractive borrowing costs.

 

S&P Global said the recent surge in foreign currency non-resident (banks) deposits has provided banks with significant medium-term funding. Indian banks raised around $127 billion through such deposits between June and August, equivalent to about 4.5% of the banking system's deposit base as of March. The agency estimates the overall balance-sheet increase could be $190 billion–$220 billion, including loans taken against the deposits. 

 

However, the agency cautioned that the inflow is unlikely to be repeated at the same scale and banks could face refinancing and repricing pressure when the deposits mature between 2029 and 2031. The deposits are mildly negative for margins initially because their effective cost is higher than traditional deposits, though profitability could improve as banks deploy the funds into higher-yielding loans. 

 

On asset quality, S&P Global said a weak monsoon and elevated input costs stemming from the West Asia conflict could create stress for rural borrowers, microfinance institutions, and smaller businesses. Retail asset quality, however, remains relatively resilient, while agricultural bad loans have declined significantly over the past decade. 

 

S&P Global expects banks' return on average assets to decline slightly to 1.2% over the next 12–24 months from 1.3% in the previous financial year, citing near-term margin pressures from FCNR(B) deposits and higher credit costs following adoption of the expected credit loss framework.

 

Beyond banking, the agency said private-sector capital expenditure is picking up, with capital expenditure by the top 200–300 Indian companies increasing around 10% year-on-year. It expects investment in areas such as data centres and semiconductors to add to the momentum, although much of the private capital expenditure is being funded without incremental bank borrowing. 

 

S&P Global also expects India's insurance sector to benefit from low penetration, economic growth, and regulatory reforms, although profitability pressures in non-life insurance are likely to persist. Overall, the agency expects India's economic fundamentals to remain resilient, supporting GDP growth of around 7.0–7.2% over the next few years.  End

 

US$1 = INR 96.40

 

Reported by Kabir Sharma and Nandini Sinha

Edited by Rajeev Pai

 

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