RBI Expects 6.6 Per Cent GDP Growth In FY25 As Financial Stability Report Suggests Strong Profitability And Declining NPAs

According to a report by the Reserve Bank of India (RBI) released on Monday (30 December), the Indian economy is demonstrating strength and stability. The report projects that the country's gross domestic product (GDP) will see a growth rate of 6.6 per cent in the fiscal year 2024-25.

This growth is expected to be driven by a resurgence in rural consumption, an increase in government spending and investment, robust services exports, declining non-performing assets and adequate capital and liquidity buffers.

The Financial Stability Report (FSR) for December 2024 has been published by the RBI, presenting the joint evaluation of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the robustness of India's financial system and potential risks to its financial stability.

"The soundness of scheduled commercial banks (SCBs) has been bolstered by strong profitability... Return on assets (RoA) and return on equity (RoE) are at decadal highs, while the gross non-performing asset (GNPA) ratio has fallen to a multi-year low," the report said.

The report also indicated that macro stress tests show that a majority of SCBs possess sufficient capital buffers compared to the regulatory minimum limit, even under severe stress conditions. These stress tests further confirm the robustness of mutual funds and clearing corporations.

Regarding the economy, FSR reported a moderation in real GDP growth (year-on-year) to 6 per cent in the first half of 2024-25, down from the 8.2 per cent and 8.1 per cent growth observed during the first and second halves of 2023-24, respectively.

"Despite this recent deceleration, structural growth drivers remain intact. Real GDP growth is expected to recover in Q3 and Q4 of 2024-25 supported by pick up in domestic drivers, mainly public consumption and investment, strong service exports and easy financial conditions," the RBI said.

The report on inflation suggests that in the future, the price-lowering impact of a plentiful kharif harvest and promising rabi crop prospects are anticipated to reduce the cost of food grains.

Conversely, the increasing occurrence of severe weather conditions persistently presents challenges to the stability of food inflation. Continuing geopolitical disputes and geo-economic division may also exert upward pressures on global supply chain and commodity prices.