Views on Monetary Policy Committee by Ninad Jadhav, Equity Research Analyst (BFSI) at LKP Securities Ltd
Below the Views on Monetary Policy Committee by Ninad Jadhav, Equity Research Analyst (BFSI) at LKP Securities Ltd
"The Monetary Policy Committee (MPC) reduced the policy repo rate by 25 bps to 5.25%, noting that inflation has fallen sharply and is projected at 2.0% for FY26, well below previous estimates. The committee highlighted that headline inflation has eased meaningfully, supported by softening food prices, stable fuel costs, and moderation in core inflation. Growth remains resilient, with robust consumption, healthy agricultural prospects, and strong investment demand helping maintain momentum, although some moderation in activity is expected.
A 25 bps repo rate cut is broadly positive for the lending sector, though with differing intensity across banks and NBFCs. For banks, the immediate effect is a mild NIM compression as loan yields reset faster than deposit costs, but this is partly cushioned by improving liquidity, a narrowing savings–TD rate gap, and the gradual repricing of high-cost term deposits. Lower rates should support credit demand across retail and SME segments, while the benign inflation backdrop strengthens borrower repayment capacity, leading to better asset quality and contained credit costs. As a result, large banks with strong CASA and diversified loan books (HDFC, ICICI and SBI) are well positioned to maintain stable profitability despite modest margin pressure. NBFCs, however, benefit more directly: their funding costs decline faster through lower bank borrowing rates and cheaper market instruments, while their predominantly fixed-rate assets reprice slowly, allowing margin expansion. Coupled with stronger demand in home loans, vehicle finance, gold loans and MSME lending, and improving collection efficiency, NBFCs see a more pronounced uplift in growth and profitability. Overall, the rate cut provides a moderate tailwind for banks and a meaningful boost for NBFCs, with the greatest benefits accruing to lenders with granular retail franchises and strong liability or capital profiles"
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