Auto industry and fintech experts have said that reduced EMIs will stimulate demand for cars and two-wheelers, especially electric vehicles.
MUMBAI: June 5, 2025: As a much-needed boost to India’s consumption-driven industries, the Reserve Bank of India (RBI) cut the repo rate by 50 basis points, from 6% to 5.5%. This is the steepest cut in more than two years, and it is expected to spur growth for both ICE and EVs, which have historically faced difficulties.
This monetary easing may offer the auto sector in India much-needed respite, which has been struggling with both demand volatility and high interest rates.
Dr Anish Shah, Group CEO & MD, Mahindra Group, sharing his excitement for the latest move by the RBI Governor, has said “We welcome the Reserve Bank of India’s decision to reduce policy rates at a time when the Indian economy is poised for its next phase of growth. This move demonstrates the RBI’s confidence in the macroeconomic fundamentals and its proactive approach to supporting sustainable expansion.”
The rate cut will serve as a positive catalyst for consumption and investment, particularly in interest-sensitive sectors such as automobiles, housing, and MSMEs. It will also ease borrowing costs, improve liquidity, and further strengthen the momentum behind India’s infrastructure and manufacturing push.” He further added
Shailesh Chandra, President of the Society of Indian Automobile Manufacturers (SIAM) and Managing Director of Tata Passenger Vehicles Ltd and Tata Passenger Electric Mobility Ltd, echoed this optimism, stating that a reduction in repo rates would have a positive impact on the auto sector since “it would lead to increased accessibility to finance at reduced costs, thereby creating a positive sentiment amongst the consumers in the market”, Chandra noted.
Shradha Suri Marwah, President, ACMA has also welcomed the RBI’s repo cut move and said, “The Automotive Component Manufacturers Association of India (ACMA) welcomes the Reserve Bank of India’s decision to reduce the repo rate by 50 basis points and to ease the Cash Reserve Ratio. These measures, especially in the backdrop of persistent global headwinds, are a timely and proactive step toward stimulating domestic demand and supporting industrial growth.
The reduction in interest rates is expected to translate into lower borrowing costs for both consumers and businesses, thereby providing a much-needed boost to the automotive sector, which has been navigating a complex macroeconomic environment. The infusion of liquidity through the CRR cut will further ease working capital pressures, particularly for MSMEs that form the backbone of the auto component industry.
“We remain optimistic that these measures will support sustained growth, enhance consumer sentiment, and help India’s auto component manufacturing sector retain its competitiveness in the global market.”
Electric vehicles (EVs), a market that is particularly sensitive to credit due to their higher upfront costs and growing resale value, are also expected to see lower financing costs as a result of the repo rate cut” Marwah said
According to Jaibir Siwach, founder and CEO of Goa-based Kabira Mobility, “lower interest rates provide a double boost for EVs—first by easing access to capital for consumers and second by improving the business case for fleet operators.” This means that both EVs and green mobility will benefit.
It also coincides with the alignment of state governments and original equipment manufacturers (OEMs) on new EV incentives and the expansion of charging infrastructure, said Dr Shyam Mohan, Managing Director of Motoray Mobility, a last-mile company based in Gurgaon.
Fintech lenders and non-banking financial companies (NBFCs) that cater to the EV ecosystem may find it simpler to extend their credit lines to dealers and end users as a result of this relaxation, according to Aditya Singh, co-founder and CEO of the financial services and technology startup TapFin.
The repo rate’s recent decline is encouraging for growth and the adoption of clean mobility and solar power, among other sustainability initiatives. It should facilitate the allocation of funds among more affordable and competitive financing pools. The Tap Fin CEO continued by saying
Following a three-day review by the Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, the rate cut was announced. This is the third consecutive cut, following those in February and April of this year. The central bank blamed its aggressive approach on a variety of factors, such as softening inflation, a diminished appetite for investment, and global uncertainties.
Credit Eases, Wheels Start Turning
In the automotive industry, where 70–80% of passenger cars and almost 90% of two-wheelers are financed, credit costs continue to be a significant demand driver.
Particularly for price-sensitive markets like two-wheelers and entry-level cars, lower interest rates result in less expensive loans and EMIs.
“Retail finance is the lifeblood of India’s auto industry. The affordability equation for first-time buyers can be drastically changed by even a 25–50 basis point change, according to a senior Mahindra Finance official.
“We anticipate that lenders will pass on at least some of this benefit, which could stimulate latent demand, given the repo rate of 5.5%,” he continued.
A number of lenders, including SBI and HDFC Bank, are likely to lower their auto loan rates in the days ahead in response to the recent announcement. In Tier-2 and Tier-3 markets, where discretionary spending is strongly correlated with monthly expenses, this could increase consumer confidence.
A Shot in the Arm for Entry Segments
Certain auto segments have seen a decline in demand in recent quarters, especially small cars and two-wheelers, which are typically the most price-sensitive. High borrowing costs, inflationary pressures, and rural distress are some of the factors that have hurt sentiment.
“The current cut will be in line with improving affordability across all segments,” said Sachin Mahajan, President of the FADA Maharashtra, adding that “EMI rationalisation could play a crucial role in bringing first-time buyers back into the market.”
According to Mahajan, the timing of this rate cut is ideal for a potential demand uptick because inflation is still well within the RBI’s target range and auto prices have levelled off after several increases prompted by rising input costs and BS6 standards.
Commercial Vehicles and Sentiment
Lower financing costs can still make fleet expansion decisions easier, even though commercial vehicle (CV) sales are strongly correlated with more general macroeconomic indicators like freight demand and capital expenditure cycles. Longer loan terms and higher loan values are typical of CV financing, which can save money on interest.
Fleet managers keep a careful eye on interest rates. A senior executive at Ashok Leyland stated that a 50 basis point cut could have a substantial effect on balance sheets, particularly in a sector with narrow profit margins.
Chip shortages and other supply-side barriers have mostly subsided, but demand recovery is still uneven, especially at the base of the pyramid. The auto industry, which is frequently seen as a gauge of consumer sentiment, is well-positioned to react to the RBI’s decisive 50 basis point cut, which signals a shift in favour of growth.
However, if past trends are any indication, a well-timed rate reduction combined with a more favourable macroenvironment could boost the auto sector.
