The State Bank of India (SBI) forecasted India's GDP growth at 6.3 pc, lower than the Reserve Bank of India's (RBI) projection of 6.6 pc for FY25 in its latest report. The average growth of the first two-quarters of FY 25 is now at 6.05 pc. The report forecast comes after the RBI sharply downgraded its real GDP growth projection for FY25 from 7.2 per cent to 6.6 per cent during its latest Monetary Policy Committee (MPC) meeting, citing balanced risks to the economy.
It said, "We believe that GDP growth for FY25 will be lower than the RBI's estimate and we are pegging the GDP growth at 6.3 per cent for FY25".
This is the first instance in five years where the RBI initially revised its growth estimate upward--from 7.0 per cent to 7.2 per cent--only to later lower it. In earlier years, such adjustments were common but followed a consistent pattern of downward revisions. For instance, growth forecasts for FY22 and FY23 were downgraded by an average of 90 basis points (bps).
The report said, "Such a downward revision in growth forecast is nothing new as in FY22 and FY23 the growth forecasts were downgraded on an average by 90 basis points". Meanwhile, the RBI has also announced a cut in the cash reserve ratio (CRR) by 50 basis points in two phases. The CRR will be reduced by 25 bps each, effective December 14 and December 28, 2024, respectively, bringing it down to 4 per cent of net demand and time liabilities (NDTL). This move is expected to inject Rs 1.16 lakh crore into the banking system, potentially easing liquidity constraints in the months ahead.
However, the report analysis suggests that while the CRR reduction may not directly impact deposit or lending rates, it could positively affect banks' net interest margins (NIM) by a modest 3-4 bps. The report highlights growing caution in growth forecasts amid global and domestic economic challenges. The banking sector may experience marginal benefits from the CRR cut, but the report lowers GDP estimates which highlights the need for continued vigilance in monitoring economic developments.
