As India ushers in the festive season, the newly introduced GST rate cuts promise a welcome boost in consumer demand. But will lower taxes spark a surge in bank lending? Here's what both the market and experts are saying—in simple terms.
What's Happening?
- 1. From September 22, 2025, India has slashed GST on several consumer categories—small cars, TVs, air conditioners, textiles, and so on—to stimulate festive spending.
- 2. This simplification to just two tax slabs (5% and 18%) aims to reignite retail consumption and offset rising economic uncertainty driven by steep US tariffs.
Why Banks Remain Cautious
Despite the tax reform, analysts and financial institutions remain reserved about a sharp jump in credit growth:
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Tariff-Driven Uncertainty: Banks are wary of lending aggressively amid fluctuating global trade dynamics.
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2. Credit Quality Concerns: Rising risks of loan defaults make bankers tread carefully—especially in unsecured lending segments.
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3. Forecast: ICRA maintains its forecast for FY26 credit growth at 10.4–11.3%, suggesting steady pace, not a boom.
Will the Festival Fuel Lending?
| Potential Positive Effect |
Why It May Not Boost Lending Immediately |
| Festival demand could increase loan uptake for autos, appliances, and durables |
Tight underwriting standards could limit lending |
| GST savings may boost disposable income and raise consumer sentiment
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Higher base rates and inflation still bite budgets |
| Banks launching festive loan offers
|
Tariff risks temper aggressive lending strategies |
- 1. Consumption-led sectors—auto, consumer durables—could see increased demand and retail lending.
- 2. Motilal Oswal expects double-digit credit growth in H2FY26, driven by festive spending.
- 3. Yet significant boost in lending hinges on smoother trade environment and confidence in macro stability.
Bigger Picture: Economic Growth & Inflation
While banks are conservative, macroeconomic views are optimistic:
- 1. GST cuts could add 0.3–0.5 percentage points to GDP, cushioning against tariff shocks.
- 2. The demand infusion is expected to lift growth and help public finances absorb the ₹48,000 crore revenue shortfall.
- 3. Market sentiment has responded positively—financial stocks rallied, and investors anticipate a broader economic upswing.
Final Takeaway
- 1. GST cuts are a smart consumption stimulus, especially timely ahead of seasonal spending.
- 2. Credit growth is likely to pick up, but gradual—banks remain cautious due to macro risks.
- 3. Real beneficiaries: Consumers (lower prices), retail sectors (higher demand), and the broader economy (growth boost).
- 4. For lenders, the GST relief is a welcome tailwind—but not enough to override caution in uncertain times.
