India’s economic outlook is becoming positive with recent developments. The Reserve Bank of India decided to maintain the repo rate at 5.50% on October 1, 2025, while also revising its growth forecast for the fiscal year 2026 to 6.8%. This adjustment is based on the country’s strong economic performance, with a growth rate of 7.8% in the first quarter. The government’s fiscal policy is in line with these projections.
In the Union Budget for 2025–26, an increase in the income tax rebate was announced, allowing individuals to enjoy tax-free income up to Rs 12 lakh. Finance Minister Nirmala Sitharaman highlighted that this change is expected to drive higher household spending and savings. Additionally, a comprehensive reform of the Goods and Services Tax (GST) was introduced, simplifying tax rates to 5% and 18%, and reducing levies on essential goods and moderate purchases.
These recent policy measures indicate a concerted effort by policymakers to boost consumer spending by putting more money in people’s pockets and lowering the cost of goods and services, while also focusing on bolstering public investment in infrastructure development.
However, challenges lie ahead in terms of funding growth initiatives. Data from the RBI reveals a slowdown in credit growth to around 11% in the fiscal year 2025, a significant drop from the 20.2% growth rate recorded in the previous fiscal year. Deposits also expanded at a slower pace of 10.6%, compared to 13% in the prior year. Notably, there has been a shift towards higher-cost term deposits, with private banks witnessing an increase in their average term deposit rates from 4.5% in 2022 to 6.6% by March 2024.
Despite some adjustments in deposit and lending rates by banks, there remains a mismatch, leading to a reliance on higher-yield unsecured credit, as highlighted in the Financial Stability Report, which indicates a rise in retail non-performing assets originating from unsecured loans.
Furthermore, the banking sector faces technological challenges that impact customer experience and operational efficiency. Issues related to mobile and electronic banking services have seen a significant increase in complaints, emphasizing the need for improved payment infrastructure and service reliability. Modernizing technological frameworks, enhancing customer service experiences, and adopting digital innovations are crucial for banks to remain competitive in the digital era.
In conclusion, India’s economic landscape showcases promising growth prospects supported by accommodative monetary policies and strategic tax reforms. The key for banks moving forward lies in enhancing technological capabilities, optimizing customer experiences, and fostering trust to attract and retain deposits in a rapidly evolving digital environment.