RBI Rate Cuts Boost Debt Serviceability, Unevenly Impact Industries

The Reserve Bank of India's recent decision to cut interest rates has led to a significant reduction in borrowing costs for companies, ultimately enhancing debt serviceability across various sectors, according to a report by the Bank of Baroda (BoB). However, this financial relief was not universally felt. Key industries, notably crude oil and BFSI, have disproportionately influenced the trend.

In the first quarter of the Financial Year 2026 (Q1 FY26), net sales for a sample of 2545 companies rose by 4.9%, a decrease from the 10.6% growth observed in the same period last year. Expenditure growth was moderate at 4.3%, down from 8.7% in Q1 FY25. Interest costs grew by 9.6% during this period, a decline from the 23.8% growth in Q1 FY25, following a 100 basis point reduction in the central bank's repo rate since February 2025. Profit growth remained stable at 11%.

For non-BFSI segments, net sales growth was 3.6% in Q1 FY26, compared to a 7.2% rise the previous year. Profitability improved due to lower expenses and interest costs, with PAT growth of 13.3%, up from 5.7% in Q1 FY25. However, these outcomes were affected by one significant player in the crude oil industry. Excluding this sector, non-BFSI net sales grew by 4.7% compared to 7.2% in Q1 FY25, and PAT growth increased to 8.3% from 7.1%.

Key factors contributing to a promising demand recovery include a normal monsoon, festive demand, low inflation, cuts in interest rates, and income tax benefits. Infrastructure and related sectors are benefiting from government capital expenditure, while export-oriented industries have shown resilience and readiness for future challenges. Service-linked industries reported steady growth, suggesting a gradual economic improvement in upcoming quarters, the report concludes.

(With inputs from agencies.)