Repo rate cut looks unlikely, but CRR cut would be a welcome relief: Axis Bank’s Rajiv Anand

Axis Bank’s Deputy Managing Director Rajiv Anand believes a repo rate cut is unlikely in the near term due to persistent inflationary pressures. Speaking to CNBC-TV18, Anand highlighted that India’s Q2 GDP growth, which slowed to 5.4%, has intensified concerns about the economy.

Despite this, Anand did not entirely rule out a reduction in the Cash Reserve Ratio (CRR), a key tool used by the Reserve Bank of India (RBI) to manage liquidity.

CRR is the portion of commercial banks’ deposits that they must keep with the RBI, and a cut would free up more funds for banks to lend.

“It’s a close call, but if it happens, we’ll be delighted. A CRR cut would ease liquidity pressures and help reduce deposit-raising costs, which are currently between 7.5-8%, despite the repo rate being at 6.5%,” Anand explained.

The RBI’s decision on both the repo rate and CRR will be announced following the Monetary Policy Committee (MPC) meeting on December 6, which comes at a time of economic slowdown.

India’s Q2 GDP growth has dropped to its lowest level in nearly two years, primarily due to poor performance in the manufacturing and mining sectors.

This weak GDP print has prompted brokerages to revise down their FY25 growth forecasts, with many calling for monetary and fiscal interventions to steer the economy back toward a 6.5% annual growth rate.

Liquidity measures, including a potential CRR cut, are seen as crucial to stimulating growth.

Anand called the 5.4% GDP growth a “shocker,” adding that the slowdown was evident in corporate earnings. “The key question is whether this slowdown is cyclical and how much of it we can recover in the second half,” he told CNBC-TV18.

Limited corporate credit demand

The weak GDP print highlighted a slowdown in corporate activity, and Anand acknowledged muted credit demand from large corporates. “Corporate India is deleveraged and has strong cash flows, so we’re not seeing much demand there,” he said.

In contrast, Axis Bank’s SME and mid-market loan books continue to grow strongly, supported by a reasonably stable mortgage portfolio.

However, the bank has adopted a cautious approach to unsecured lending.

“We’ve pulled back on growth in unsecured loans, given the well-articulated risks in this space,” Anand added.

Liquidity easing and fiscal stimulus

Anand expressed hope that improved liquidity and increased government spending in the second half of the year would stimulate credit growth.

“We’re starting to see early signs of easing liquidity. This, coupled with higher government expenditure, could support credit growth,” he said.

Impact on margins

With much of Axis Bank’s loan book linked to the External Benchmark Lending Rate (EBLR), Anand warned that any rate cut would impact net interest margins (NIMs) in the short term.

“Over time, as lending rates come down, deposit rates will follow. But NIMs will remain in a tight range,” he noted.

Anand also highlighted ongoing discussions with the RBI on project finance rules.

“Various stakeholders—banks, the government, and companies—have engaged with the RBI. We’re awaiting the regulator’s final guidelines,” he said.