RBI's Rate Reduction to Boost Demand for Loans: Bank Leaders
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Synopsis
Major banks have praised the RBI's recent rate cut and shift to an accommodative stance as a timely measure to stimulate demand for loans while supporting consumers amid global uncertainties.
Key Takeaways
- RBI's rate cut encourages loan demand.
- Focus on tier 2 and tier 3 markets.
- Retail loan growth exceeds 18 percent YoY.
- Accommodative stance to cushion economic impacts.
- MSME sector to benefit significantly.
New Delhi, April 9 (NationPress) Major banks announced on Wednesday that the RBI's rate reduction, along with the shift to an accommodative stance, represents a prompt and well-timed initiative that offers forward guidance to the market, aiming to remain supportive in light of evolving global uncertainties and empower consumers.
The 25 basis points rate cut is expected to enhance demand for home, auto, and personal loans, particularly in tier 2 and tier 3 markets where interest sensitivity is more pronounced, according to Binod Kumar, MD and CEO of Indian Bank.
Recent trends indicate retail loans have grown over 18 percent YoY, and a lower rate environment may further boost consumption and bolster economic momentum.
“Indian Bank is fully prepared to quickly and responsibly pass on these benefits to our clients, ensuring inclusive credit growth,” he stated.
C.S. Setty, Chairman of the State Bank of India (SBI), noted that the decision to adopt an accommodative stance will mitigate the secondary effects of tariffs on the domestic economy.
“With inflation under control, growth imperatives will take precedence in FY26,” he remarked.
Setty also highlighted that regulatory measures, including the market-based securitization framework for stressed assets and the review of policies related to gold lending, are timely initiatives.
“Expanding the co-lending framework provides broader options for all stakeholders,” he added.
Reserve Bank Governor Sanjay Malhotra revealed a significant proposal aimed at liberalizing the RBI’s co-lending guidelines for banks and NBFCs, allowing them to extend beyond just priority sector lending.
The current framework restricts co-lending partnerships between banks and non-banking financial companies (NBFCs) to priority sectors such as agriculture, micro-enterprises, and loans for weaker sections.
Kumar pointed out that the change in stance towards an accommodative approach is positively impactful, providing greater liquidity and growth potential.
“Collectively, these measures will support both MSME and retail demand. The MSME sector, contributing nearly 30 percent to India's GDP and accounting for over 40 percent of exports, will gain from this decision as it will lower credit costs and improve cash flows—essential for recovery and growth in changing market conditions,” he noted.
He anticipates enhanced credit demand at Indian Bank, as MSMEs constitute a key segment of its lending portfolio.
“Broadening the scope of co-lending will further amplify lending to these sectors,” he remarked.
Sakshi Gupta, Principal Economist at HDFC Bank, stated: "We foresee two additional rate cuts in 2025, with the next cut expected in the June policy meeting."
“As liquidity conditions are set to improve, likely averaging above neutral in the current quarter, the transmission of rate cuts to money market rates and deposit rates is also anticipated to rise,” Gupta added.
