Welcome to the 169th edition of The Pattern, a weekly newsletter where we dive into the latest from the world of economy, technology and finance. Let’s get right into it!  

Every working-class Indian knows the feeling: a tempting product overshadowed by a price tag inflated with tax. From the shampoo bottle in your Q-commerce cart to your dream car, the Goods and Services Tax (GST) silently decides how far your money really goes.  

Now with GST 2.0, the government is hitting the reset button, and the ripple effects won't just be in your daily essentials. They’ll shape the way we borrow, spend, and even buy our homes—and play a decisive role in India’s journey to becoming the world’s third-largest economy.  

As India gears up for the festive season, the GST Council announced that starting from 22 September 2025, India will adopt a simplified tax regime with just two slabs: 5% and 18%, down from the previous four (5%, 12%, 18%, and 28%).   

However, for 'sin goods' (like tobacco, cigarettes, gambling, soft drinks), along with high-end luxury vehicles, the slab remains higher at 40%.  

As much as it sounds neat on paper, the impact on credit growth goes much deeper. The consequences run from your self-care to healthcare. As SBI Chairman C.S. Setty explained: "With greater spending power, demand and credit expansion will rise, driving economic growth. In a similar vein, the insurance sector stands to benefit with lower premiums and thus better protection coverage and larger insurance penetration."  

But why now?  

The timing of GST 2.0 is not accidental.   

Q1 FY26 didn't paint a very flattering picture for lenders. RBI's rate cuts squeezed margins. Consumer lending also showed cracks. The sales of big-ticket items like refrigerators and AC, which once fueled urban EMI growth, have slowed down.  

HFCs saw disbursal rates crash 26% from the previous quarter, even though AUM limped past ₹3.7 lakh crore. Gross NPAs may have eased from 1.7% to 1.6% for prime financiers, but the larger story was one of pressure.   

Yet, in the middle of this slowdown, one sector picked up speed: automobiles. Auto loans in Q1 FY26 jumped by ₹29,492 crore—up 4.7% QoQ.  

The problem is clear: lenders are stuck between shrinking margins, uneven demand, and a consumer class that doesn't behave uniformly. By cutting GST on essentials, construction materials, and cars, the government isn't just lowering prices, it's nudging households into credit.  

A crucial push for housing  

Take housing, for instance. With GST on cement down to 5% and steel at 18%, overall construction costs are expected to fall by 3–5%. Developers, already struggling with cash flow, get some relief.   

As Anuj Puri of ANAROCK said, "The affordable housing category has already seen its share of sales drop from 38% in 2019 to just 18% in 2024. Lower costs, if passed on to buyers, can revive demand in this crucial segment."   

Chairman of Hiranandani and NAREDCO, Niranjan Hiranandani, went further, calling it a "festive bonanza that" could push GDP growth beyond 8%.  

For homebuyers, this translates to more affordable projects and attractive EMIs. India is already short of about one crore affordable homes, and that gap could stretch to 2.5 crore by 2030. This kind of GST pricing can give first-time buyers the confidence to finally take the plunge, especially in tier-2 and 3 cities. For lenders, it means fresh demand at a time when disbursals were falling. Affordable housing, which had been losing momentum, could finally see a revival.  

Automobiles driving credit forward  

Small cars once faced a 28% tax; now it’s 18%. On a ₹8 lakh hatchback, tax drops from ₹2.24 lakh to ₹1.44 lakh — an ₹80,000 saving that could finally bring a hesitant buyer into the showroom  

Public banks are already offering rates as low as 7.60% (UCO Bank), 7.70% (Canara Bank, Bank of Maharashtra). Combine that with festive-season discounts, and the auto sector may accelerate back into the race.  

Lower GST = lower prices = lighter EMIs = Credit growth  

The ripple effect beyond homes and cars  

The GST cuts don't stop there. Household essentials, FMCG, personal care, and wellness services are all cheaper now. That frees up disposable income, which usually finds its way into retail spending and onto credit cards or small-ticket loans.  

Fintech firms, especially those focused on UPI-enabled credit through RuPay cards, are optimistic about this change. The cofounder of Kiwi, Mohit Bedi, said, "Lower GST rates of 5% and 18% will make appliances, electronics, and essential goods more affordable. Historically, such price reductions translate into surges in consumer spending, and we anticipate a similar demand spike this festive season."  

For lenders, this means higher demand across personal loans, MSME lending, and retail credit. And with GST compliance now simpler, they can focus less on paperwork and more on customer acquisition.   

Growth comes at a cost  

Of course, no reform comes without a cost. The government itself estimates a revenue loss of nearly ₹48,000 crore from the GST cuts. But policymakers are betting that what they lose upfront in taxes will be more than offset by what they gain in demand, credit expansion, and long-term growth.   

Diwali comes early  

Beneath the fine print, GST 2.0 is focused on restoring confidence in the economy, which will eventually increase disposable income and improve compliance. By making goods more affordable, it bridges the gap between desire and affordability through credit. Housing and automobiles, two of India's most popular EMI categories, stand at the forefront of this transformation.  

With GST cuts, the rise of UPI-driven credit, and the festive season approaching, India's lending sector is poised for a significant uptick in demand.  

For now, it feels like Diwali has come early. The real test will be whether lenders can seize this opportunity and fuel growth without overextending themselves.  

That's a wrap for this week. As always, leaving you with a few reads to explore. Have a great weekend!  

  
Reading List:  

Govt weighs special courts to fast-track bank fraud cases  

Banks step up checks on deposit accounts to thwart mules  

Public sector banks race ahead of private lenders in home loan market in April-June: report  

UPI sets remarkable new volume milestone in August  

Wondering why RBI rate cuts haven't made your EMI bill lower? Herein lies the answer  

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to get the latest updates.   

Cheers,  

Mayank