Monetary Policy Review: RBI Governor Signals Pause; Track & Monitor Previous Rate Cuts— Read DRChoksey Report

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Deven Choksey Report

The Reserve Bank of India Monetary Policy Committee maintained the policy repo rate at 5.5% and reiterated its neutral stance, as most of the domestic high frequency indicators suggest that economic activity continued to remain resilient, despite global tariff-related uncertainties.

The MPC upgraded the growth outlook for the current fiscal, projecting real GDP growth at 6.8% (+30bps vs last projection) for FY26E, supported by benign inflation cycle, favorable financial environment and consumer demand amid GST rationalization drive by the GST council in its 56th meeting held on September 3, 2025, offset by expected weakness in exports led by prolonged global trade pressures.

Although, the repo rate has been cut by 100bps cumulatively, it has exerted marginal pressure on bank’s Net Interest Margins, led by judicious and effective cost of funding for major Indian banks. The impact has been selective, with impact on ICICI bank and Union bank on the lower side, while the impact has been higher on SBI and other PSU banks of the higher side. The expected impact is to be higher for banks with a higher share of floating-rate assets.

Despite MPC continued with neutral stance and kept repo rates unchanged, consumer confidence remains buoyant, driven by festive demand, recent GST cuts on majority of the consumption basket and expected improvement in credit environment, expected to boost demand for low ticket items such as consumer durables and high-ticket items including autos and real estate.

We remain positive selectively on banks including ICICI Bank and HDFC Bank on private side, while SBI on the PSU side being our top picks, led by there stronger balance sheet, robust asset quality, and superior return ratios.

We also remain positive on selective NBFC’s such as Bajaj Finance, led by healthy credit momentum and franchise strength.

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