RBI Paves Way for Rate Cuts as Inflation Eases; Nilesh Shah Highlights Proactive Stance on NBFCs and Unsecured Loans

Nilesh Shah, Managing Director of Kotak AMC, mentioned that the Reserve Bank of India (RBI) is preparing for potential interest rate cuts later this year, depending on inflation trends. As fiscal policy tightens, monetary policy might ease, creating a balanced approach, which is already reflected in the recent credit policy.

RBI’s Cautious Approach Towards NBFCs

The RBI has increased the risk weightage on unsecured loans, indicating caution in the Non-Banking Financial Companies (NBFCs) sector. Shah noted early signs of pressure in microfinance loans and delays in credit card debt repayment, though these are not yet classified as Non-Performing Assets (NPAs). He highlighted the importance of NBFCs following the RBI’s warnings to avoid future risks.

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Balancing Credit and Economic Growth

Shah discussed the delicate balance between providing credit and managing the risk of NPAs. He pointed out that overextending credit can lead to financial instability, while restricting credit too much can hamper economic growth. He praised the RBI’s efforts to strike this balance, whether through inflation control, liquidity management, or addressing unsecured loans.

RBI’s GDP Growth Estimate Stands Strong

The RBI has maintained its real GDP growth estimate of 7.2% for FY25, despite global challenges like geopolitical tensions and a slowdown in manufacturing. While market estimates fall below 7%, Shah believes the RBI’s forecast is more reliable, given its access to comprehensive data. He acknowledged that some weak indicators, such as lower corporate tax collections and slower GST growth, may cause temporary disruptions

Shah concluded by comparing the Indian economy to an elephant that has transformed into a horse, symbolizing faster growth. However, he stressed that like an elephant, the economy continues to move forward without stepping back, highlighting the importance of sustained progress. Although the RBI did not mention the stock market in its statement, Shah is confident that they are keeping a close watch on it amidst global uncertainties.