Dr. Samantak Das, Chief Economist at JLL India, highlighted that this rate cut aligns well with fiscal strategies and could reignite consumption. He stated, “The rate cut – the first in nearly five years – sends a clear message that a cohesive policy framework is in place, prioritizing growth while balancing risks.” He also emphasized that the reduction in capital costs could spark a new wave of demand in the housing market by improving homebuyer sentiment and affordability.

While 2024 was a strong year for real estate, rising prices had started to slow down market momentum, as seen in the drop in Q4 sales. The recent rate cut, along with new budget tax benefits for middle-income buyers, is expected to boost homebuyer confidence and sustain market activity.

Dr. Niranjan Hiranandani, Chairman of NAREDCO, called the repo rate cut a strategic move, citing stable inflation and a moderate fiscal deficit. He remarked, “With inflation under control and steady economic growth, this rate reduction signals resilience and robust demand, despite global uncertainties.”

Shishir Baijal, Chairman and Managing Director of Knight Frank India, also welcomed the move, calling it a significant positive development for real estate. He believes the rate cut will make housing more affordable, increasing demand for home loans and stimulating sector growth. Baijal added that the tax benefits for the middle class would further support residential demand, particularly in the sub-50 Lakh category, which had seen weaker demand recently.

Overall, experts believe the RBI’s repo rate cut, combined with the budget’s focus on tax incentives, will have a long-lasting positive impact on the housing market. With lower interest rates, homebuyers are expected to find ownership more accessible, which could lead to increased sales and new project launches.

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Starting in April 2025, Indian banks will transition to using the ‘.bank.in’ domain, distinguishing legitimate banking websites from fraudulent ones. Additionally, a ‘fin.in’ domain will be introduced for broader financial sector websites.

Addressing the surge in digital fraud, Malhotra emphasized the need for collective action from all stakeholders to address the growing concern. He confirmed that these measures are part of a series of initiatives to strengthen the security of banking and payment systems.

Further bolstering digital security, the RBI is extending its additional factor of authentication (AFA) for digital transactions. This enhancement will now also apply to international online payments made to offshore merchants, ensuring a safer environment for cross-border digital transactions.

In addition to these security measures, the RBI unveiled new steps to better manage interest rate risks. This includes the introduction of a new forward contract for government securities, primarily benefiting long-term investors, such as insurance funds.

To encourage greater retail participation in government securities, the RBI will expand access to the NDS-OM platform, enabling non-bank brokers to participate more actively in secondary market trading of government securities.

Furthermore, the RBI will form a working group to review trading and settlement timings across various financial markets regulated by the Reserve Bank. This review will help adapt to the changing dynamics of the market, with a report due by April 30, 2025.

Despite a moderation in net interest margins, Malhotra reassured that liquidity buffers within banks are sufficient, with healthy Return on Assets (RoA) and Return on Equity (RoE). The financial system, including Non-Banking Financial Companies (NBFCs), remains robust, ensuring the stability of India’s financial ecosystem.

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Anshul Jain, Chief Executive for India, SEA & APAC Tenant Representation at Cushman & Wakefield, called the rate cut “well-timed and much-needed.” He explained that the decision comes at a crucial time, as CPI inflation has eased and Q2-FY25 GDP growth has slowed. Jain added that the rate cut would help boost consumption and lower borrowing costs for the housing sector, especially in the affordable and mid-income home segments. He also highlighted the positive impact of the Union Budget measures in tandem with the RBI policy, offering much-needed support for the residential market.

Praveen Khandelwal, Delhi Chandni Chowk MP and Secretary General of the Confederation of All India Traders (CAIT), also welcomed the RBI’s move, calling it a “pro-growth” decision. According to Khandelwal, the rate cut will lower borrowing costs for both businesses and consumers, driving up disposable incomes and enhancing consumer spending. He emphasized that increased liquidity will encourage investment, further propelling economic growth. Khandelwal also pointed out that if the income tax exemption limit is increased to Rs12 lakh in the upcoming budget, it would lead to higher savings, thereby boosting consumer demand and market liquidity.

Ashwani Rana, Founder of Voice of Banking, echoed these positive sentiments, noting that the rate cut provides financial relief to the middle class. He highlighted the reduction of the Marginal Standing Facility (MSF) rate from 6.75% to 6.50%, making it easier for banks to borrow from the RBI. Despite these measures, inflation remains within the RBI’s target range, and GDP growth is stable. Rana believes that the rate cut will strengthen the economy while providing significant relief to both banks and their customers.

The RBI’s decision to lower interest rates aligns with efforts to ensure price stability while fostering economic growth, providing much-needed financial relief to borrowers, businesses, and the housing sector. The move is expected to have a positive ripple effect across various sectors, strengthening India’s economic recovery.

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According to the report, “Bank credit growth in 2023-24 was broad-based, led by services sector and personal loans segment, followed by agriculture and industry.” This indicates a diversified credit portfolio by banks, which is crucial for enhancing profitability while managing risks effectively.

One important aspect of the RBI’s report is its reference to the impact of stricter lending norms introduced in November. These regulations have influenced areas like consumer durables, credit card receivables, and loans to non-banking financial companies (NBFCs), where the increase in risk weights resulted in slower credit growth in these segments.

The report also noted a significant change in the share of personal loans and services in total bank credit. At the end of March 2013, personal loans accounted for 17.1% of the total credit, while services held a 21.9% share. By the end of March 2024, personal loans had grown to 32.4%, and services to 27.9%. This shift reflects banks’ growing focus on diversifying their credit portfolios and targeting higher-margin sectors.

On the matter of asset quality, the RBI report highlighted sector-specific variations in the gross non-performing assets (GNPA) ratio. As of September 2024, the agricultural sector recorded the highest GNPA ratio at 6.2%, while the retail loans segment posted the lowest at 1.2%. The industrial sector, in particular, showed significant improvements in asset quality, with its GNPA ratio dropping to 2.9% in September 2024, continuing its positive trend since March 2018.

Additionally, education loans saw a considerable reduction in GNPA ratios, dropping from 5.8% in March 2023 to 2.7% in September 2024. Despite this improvement, education loans still have the highest GNPA ratio among retail loan segments, followed by credit card receivables and consumer durables.

The RBI’s report underlined the importance of risk management and credit diversification as essential strategies for banks to sustain growth and profitability, all while ensuring the stability of the financial system.

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Crisil’s report attributes the slowdown to high interest rates and reduced fiscal support. “Risks are tilted toward the downside given the lacklustre second quarter growth number,” the report noted.

The Indian economy grew by 5.4% in real terms during the July-September quarter, as per data from the Ministry of Statistics and Programme Implementation. This figure fell short of the Reserve Bank of India’s (RBI) 7% forecast and marked a stark decline compared to the 8.1% growth in the same period last year.

In the April-June quarter of FY 2024-25, GDP growth was 6.7%, also below the RBI’s projection of 7.1%.

Signs of Revival in Third Quarter
Despite the subdued quarterly figures, high-frequency indicators from October, such as automobile sales and export growth, suggest potential recovery in the third quarter. Crisil believes the slowdown in the second quarter may be temporary.

Agricultural Growth: A Silver Lining
The agricultural sector showed resilience, with growth expected to strengthen further. A healthy kharif harvest, supported by monsoon rainfall 8% above the Long Period Average and higher reservoir levels, is anticipated to boost rural incomes and consumption.

“Increased kharif crop arrivals into the market are likely to ease the pressure on food inflation, which has remained elevated for months, eroding the purchasing power of households,” Crisil added.

Inflation Challenges
India’s retail inflation stood at 6.21% in October, exceeding the RBI’s upper tolerance limit of 6%. Elevated food prices, particularly for vegetables, fruits, and oils, were the main contributors. Policymakers aim to bring inflation down to 4% sustainably, but high food prices remain a challenge.

The RBI has maintained the repo rate at 6.5% to manage inflationary pressures. Crisil expects easing inflation and festive season demand to support consumption growth in the second half of the fiscal year.

While signs of recovery are visible, sustaining growth amid global and domestic challenges will remain a key focus for policymakers and stakeholders.

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