Davos 2025: Cutting interest rates alone will not boost credit growth, Axis Bank MD Amitabh Chaudhry

Axis Bank MD Amitabh Chaudhry

Reducing interest rates alone will not accelerate economic growth, which has been slowing over the past few quarters, Axis Bank managing director and chief executive officer (CEO) Amitabh Chaudhry has said.

His comments come ahead of the Reserve Bank of India’s monetary policy committee meeting in early February, where the industry expects a rate cut.

“I think more needs to be done on supporting credit growth, more needs to be done on improving the liquidity in the system and I think that will be more important than just going and looking at the interest rate cut and hoping that things will pan out on their own,” Chaudhry told Moneycontrol at the World Economic Forum in Davos.

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The government, which will present the Union Budget on February 1, and the RBI are aware of the situation and will take the steps necessary to kick start the growth. Chaudhry also said that the freebies by the state governments is also affecting the country's economic growth.

“The RBI has already taken the first step to start improving liquidity a little bit. They are talking about daily variable rate repo auctions. So, let us see how this pans out. They will do it slowly, gradually in the right way,” Chaudhry said.

The primary concern of RBI is inflation, which remains higher than 5 percent as of now, he said. Once those concerns subside, the central bank is likely to reduce interest rates. The importance of interest rates in signalling the intent to the overall market and economic sentiment, the Axis CEO said.

“The interest rate cut will spur investment in a big way. It might be an important signal,” he added.

Chaudhry also expressed concerns about state governments offering freebies, saying they affect the resources available for capital expenditure, a key factor to boost economic growth.

Interest rate cuts are expected to accelerate credit growth but then financial institutions are getting cautious, as the gross non-performing assets have been inching up over the past couple of quarters.

Over the last six quarters, the RBI has been asking much of the financial institutions to reduce unsecured lending as it perceived a risk of indebtedness, especially in the retail segment. During the last two quarters, multiple lenders, including IndusInd Bank and Axis Bank, saw slippages rising in the retail segment.

“We need to be congratulating RBI for spotting some of these things and warning the institutions about the risks they are taking and also taking some measures to curtail some of the lending which has been happening almost unrestricted on the unsecured side,” Chaudhry said, adding the bank is hopeful of the tide turning again and growth coming back in the next financial year.