Banks Should Chase Credit Growth And Not NIM Expansion, Says Capitalmind's Deepak Shenoy
Shenoy said short-term interest rates will stay lower for a while which should encourage Indian companies to turn to an attractive fundraising source: the domestic bond market.

India's slowing economy now needs her banks to move away from chasing expansion in profit margin and towards credit growth for the corporate space, according to Deepak Shenoy, chief executive officer of Capitalmind AMC.
"Banks need to start thinking more about volumes and less about margins," Shenoy told NDTV Profit. "They want to protect their NIMs. Why do we have banks with 4% NIMs? It should be lower. Growth is more important for a society and a bank," he said.
Net interest margin is a key profitability metric for banks and financial institutions.
He cited the example of banks in developed countries that have fewer regulatory requirements to reserve funds and function on lower margins.
After last week's RBI repo cut, Shenoy highlighted that the real interest rate in the economy is 1.8% — based on a 3.7% inflation projection for the year and the 5.5% benchmark rate. "This is unnecessary. We should not get more than 1% real rate in a country that aims to grow faster."
The fund manager also pointed out that the interest spread between housing loans and loans against property is very wide. So, if any entrepreneur wants to start a small business by mortgaging a property, the interest expense becomes a discouragement.
Not just in real interest rates; we need to see contraction in NIMs for credit growth, Shenoy said.
"Corporate credit growth has not grown meaningfully since 2015. They should take over some borrowing space left by retail. "If banks reduce their NIMs in favour of SME lending, there will be growth," he said.
The 10 year bond has seen yields go up to 6.33% (2034) after the RBI policy. Mostly because participants fear it's the end of the rate cut cycle. But we have seen rates go MUCH lower, just five years ago, and even before Covid! pic.twitter.com/JZK2keEpus
— Deepak Shenoy (@deepakshenoy) June 9, 2025
According to Shenoy, short-term interest rates will stay lower for a while, which should encourage Indian companies to turn to an attractive fundraising source: the domestic bond market.
India's Rs 60 lakh-crore bond market now provides a better opportunity to secure funding, as mutual funds, insurance companies and even banks are willing to mop up fresh issues.
"There is such a shortage of good borrowers which are not NBFCs in the bond market. Small- and mid-cap companies should tap the bond market, at least for their working capital needs and some for their long-term needs. "In developed economies, corporates borrow in the bond market, and MSMEs and retail go to banks," he said.