Your Deposit Rates Are Unlikely to Fall Soon Despite RBI Rate Cut

Mumbai: Despite the central bank cutting the repo rate by 25 basis points last week, banks are unlikely to cut deposits rates immediately as credit growth is likely to further accelerate in the second half of the financial year, banks have already cut deposit rates and competition from other investment avenues such as small savings schemes, mutual funds would prevent them from further reducing rates. However bulk deposits (deposits of Rs 3 crore and above) where interest rates have fallen by more than 100 basis points since the February repo cut are likely to see further reduction in rates. Speaking to DC, Ashok Chandra, managing director and chief executive officer at Punjab National Bank said, “Our credit to deposit ratio is 73 per cent and we have enough cushion to grow in credit without much growth in deposits. We need to take care of depositors also and immediate impact of 25 basis points cut in repo rate can be managed by us for this quarter. ” Says Anil Gupta senior vice-president co-group head financial sector ratings at ICRA LTD, “Given that the credit growth is likely to further accelerate in the second half of the financial year, banks will need deposits to fund their credit growth. Secondly, banks are also required to maintain their liquidity coverage ratio (LCR) and cannot have high dependence on wholesale deposits which have higher outflow rates and adversely impact LCR. " “Large banks have already reduced their deposits to below 7 percent over the last six months and competition from small savings schemes, mutual funds will refrain them from further cutting rates. However bulk deposits (deposits above Rs 3 crore) may see further reduction in rates as these largely mirror money market rates such as certificate of deposits where rates have been falling since February (by over 100 bps),” added Gupta. The banking system’s credit-deposit (CD) ratio has crossed 80 per cent reflecting strong credit demand while deposit growth remains moderate. The reluctance to reduce deposit rates stems from intense competition among banks to secure more deposits while competing with other investment avenues such as small saving schemes, mutual funds offering higher returns than bank deposits. In response to the cumulative 100 bps cut in the policy repo rate, the weighted average domestic term deposit rate on fresh deposits has declined by 105 bps, while that on outstanding deposits has softened by 32 bps over the same period. The weighted average lending rate of scheduled commercial banks has reduced by 69 bps for fresh rupee loans during February-October 2025 and by 63 basis points on outstanding rupee loans.