RBI rate cut and accommodative stance welcomed by banks; Expected to boost loan demand, economic growth

The 25 basis points rate cut is expected to boost demand for home, auto, and personal loans, particularly in tier 2 and tier 3 markets, where borrowers are more sensitive to interest rates, said Binod Kumar, MD and CEO of Indian Bank. With retail loans having grown over 18 percent year-on-year, a lower interest rate environment could further drive consumption and strengthen economic momentum.

New Delhi: Leading banks on Wednesday said that the RBI rate cut, coupled with the revision in stance to accommodative, is a swift and timely move and a forward guidance to the market to stay supportive against evolving global uncertainties, along with empowering the consumers.

The 25bps rate cut is likely to spur demand for home, auto, and personal loans, especially in tier 2 and tier 3 markets, where interest sensitivity is higher, said Binod Kumar, MD and CEO, Indian Bank.

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Retail loans grew over 18 per cent YoY as per recent trends and a lower rate environment could further accelerate consumption and support economic momentum.

“Indian Bank is fully geared to pass on the benefits swiftly and responsibly to our customers, ensuring inclusive credit growth,” he said in a statement.

According to C.S. Setty, Chairman of the State Bank of India (SBI), the revision of stance to accommodation will cushion the secondary impact of tariffs on the domestic economy.

“With inflation under check, growth imperatives will take precedence in FY26,” he said in a statement.

Setty further stated that on the regulation side, the market-based securitisation framework for stressed assets, the review of policy on gold lending, and non-fund-based facility are timely.

“Widening of the co-lending framework gives wider choices to all parties concerned,” he noted.

Reserve Bank Governor Sanjay Malhotra announced a major proposal to liberalise the RBI’s co-lending guidelines for banks and NBFCs to expand their ambit beyond priority sector lending, to which they are currently restricted.

The present framework limits co-lending to partnerships between banks and non-banking financial companies (NBFCs) to priority sector lending such as agriculture, micro-enterprises and loans to weaker sections.

According to Kumar, the change in stance to accommodative is sentimentally positive, allowing room for better liquidity and growth.

“Together, they will support both MSME and retail demand. The MSME sector, which contributes nearly 30 per cent to India’s GDP and accounts for over 40 per cent of exports, will benefit from this move as it will ease credit costs and improve cash flows, which are critical for recovery and growth in the evolving market dynamics,” he said.

He foresees improved credit appetite at Indian Bank as MSMEs form a vital part of its lending portfolio.

“Increasing the scope of co-lending will further strengthen lending to these sectors,” he mentioned.

Sakshi Gupta, Principal Economist, HDFC Bank, said: “We expect two more rate cuts in 2025, with the next rate cut likely to be delivered in the June policy.”

“As liquidity conditions continue to improve, expected to average above neutral in the current quarter, transmission of rate cuts to money market rates and for deposit rates is also likely to increase,” Gupta added.