RBI Governor Malhotra says effect of rate cut on retail loans still playing out

Reserve Bank of India Governor Sanjay Malhotra has refused to read too much into the slowing retail credit demand, especially from traditionally strong sectors like housing finance. In the post-policy press conference with journalists, Malhotra said the full impact of rate cuts on home loan demand will only come after a lag, as these are long-term investments.

“Fluctuations will be there. Housing credit overall is doing well. It may have moderated somewhat, but these are to be expected. Overall housing credit is 14% as we speak, which is very good -- more than our average credit growth of 10% for this year,” Malhotra said in reply to a question on weak retail loan demand despite a 100 basis point policy rate cut so far in 2025. One basis point is 0.01 percentage point.

Malhotra said one must be hesitant to extract signals from data on a monthly or quarterly basis, since it does not reflect the long-term trend.


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Latest sectoral data from the RBI show that until June 2025, growth in mortgages, vehicle loans, credit cards, and other personal loans has slowed, as lenders have been risk-averse due to an uptick in delinquencies, especially in unsecured loans and credit cards.

Mortgage growth slowed to 9.6% in June 2025, down from 18.2% on a year-on-year basis. “The deceleration reflects cautious lending by banks amid softening demand and increased selectivity toward self-employed and high-risk borrowers. Additionally, a shift toward affordable housing with smaller ticket sizes and slower disbursements has contributed to the muted overall growth,” a Care Ratings report earlier this week said.

Overall credit growth continued to moderate in June 2025, with non-food credit growth easing to 9.3% year-on-year—a significant drop from 17.3% recorded in June 2024. Analysts said the slowdown can be attributed to a combination of factors, including a high base effect, subdued demand, and a cautious approach by banks towards managing the Credit-to-Deposit (CD) ratio, which continues to hover near the 80% mark.

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Lenders said home loan borrowers might be particularly waiting for the full rate cut cycle to play out. "We did expect higher demand after a cumulative 100 basis point rate cut. But there is no surge in demand despite rate cuts. Many borrowers are perhaps waiting for the rate cut cycle to be completed to get the full benefit of it," LIC Housing Finance Managing Director Tribhuwan Adhikari said last week.