India’s Reserve Bank of India delivered a significant and largely unexpected monetary policy announcement on Friday, sending ripples across financial markets.
In a move aimed at bolstering economic growth amidst evolving global conditions, the Monetary Policy Committee implemented a larger-than-anticipated 50 bps cut in the repo rate, bringing it down to 5.5%. Compounding the surprise, the RBI also announced a substantial 100 bps cut in the Cash Reserve Ratio, to be executed in four phases between September and November 2025, injecting an estimated Rs 2.5 trillion into the banking system.
However, the headline-grabbing rate and CRR cuts came with a crucial caveat: the RBI shifted its policy stance again to ‘Neutral’ from ‘Accommodative’. This change in stance, in just one meeting after turning accommodative, indicates a cautious approach to future easing, suggesting that the current cycle of rate cuts might be shallow.
Brokerage Views: Decoding The RBI’s Intent
Nuvama’s Perspective: Front-Loading and Limited Room
Nuvama characterised the RBI’s actions as a “surprise” and “frontloading” of rate cuts and liquidity injections, which they believe will aid in transmitting lower rates to the broader economy. However, they expressed skepticism about the potential for further easing, suggesting this could be one of the “shallowest easing cycles” (100 bps in total for 2025).
Nuvama believes that significant further rate cuts might only be possible if the US Federal Reserve also eases its policy, given the narrowed interest rate gap between the two countries.
While the RBI lowered its FY26 inflation projection to 3.7% (from 4%), Nuvama noted that the central bank kept its FY26 GDP growth forecast unchanged at 6.5%, flagging downside risks from global headwinds.
HSBC’s Take: All-Out Easing For Structural Growth
HSBC viewed the RBI’s move as “going all out” with large repo rate and CRR cuts. They believe the RBI is looking beyond just immediate growth and inflation dynamics, focusing on India’s “structural credit and potential growth.” HSBC pointed to the Governor’s statement that “while price stability remains the focus. we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosperity,” signaling a new RBI mandate.
Despite the Governor’s caution about “very limited space” for further easing, HSBC maintains its call for one more 25bp rate cut in December 2025, anticipating FY26 growth to be lower than the RBI’s 6.5% forecast.
Morgan Stanley’s Insights: Boosting Credit And Benefiting NBFCs
Morgan Stanley interpreted the front-loaded rate and CRR cuts as a clear signal to lenders to “boost credit.” They see this as a shift from the RBI’s recent stance of cooling down loan growth. According to them, key loan segments poised for growth include unsecured consumer loans, MSMEs (Micro, Small, and Medium Enterprises), affordable housing, and gold loans.
They highlighted that the combined effect of rate cuts and CRR reduction will lead to a faster drop in borrowing costs for Non-Banking Financial Companies (NBFCs), although regulatory focus on transmission (passing on benefits to borrowers) will remain high.
Morgan Stanley rates Bajaj Finance, Aditya Birla Capital, PNB Housing Finance, Home First, and Aptus Value as ‘Overweight’ (OW), indicating they expect these stocks to perform better than the broader market. They also rate Muthoot Finance and Manappuram Finance as ‘Equalweight’ (EW). They believe these companies are better positioned to achieve loan growth in line with or exceeding expectations, based on their loan mix.
Morgan Stanley expects Shriram Finance (also rated OW) to meet its company guidance. While SBI Cards (EW) might push for higher term loan growth, stimulating growth in revolver balances quickly would require a significant loosening of credit standards.
For Net Interest Margins (NIMs), Morgan Stanley expects LIC housing finance (rated Underweight) to face sustained pressure, while PNB Housing Finance (rate over weight) might see NIM pressure for a couple of quarters before the benefits of affordable housing shift and liability cost reduction set in.
DAM Capital’s Analysis: NIM Cushion For Banks & NBFC Tailwinds
DAM Capital emphasised that the CRR frontloading provides a “NIM (Net Interest Margin) cushion” for banks, particularly benefiting frontline banks like HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, which were previously expected to see limited NIM support. Their calculations suggest each 25 bps CRR cut could add 4basis points to NIMs annually, meaning the 100basis points cut could provide an 8-10 basis points cushion. This move could also propel loan growth.
For NBFCs, DAM Capital sees a “double tailwind” from the extra 25bps rate cut (beyond consensus) and the improved transmission due to the CRR cut, leading to potential earnings upgrades for most NBFCs, with specific mention of Mahindra and Mahindra Financial Services, IIFL Finance, and MAS Financial services.
DAM Capital also noted positive commentary on unsecured/MFI stress, which, combined with the CRR cut and higher fixed-rate book, supports names like AU Bank, RBL, IDFC First, Ujjivan small finance bank, and Equitas small finance bank
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