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

Mumbai: Although the central bank cut the repo rate by 25 basis points last week, banks are unlikely to cut deposit rates immediately as credit growth is likely to accelerate further in the second half of the financial year, banks have already reduced deposit rates and competition from other investment avenues such as small savings schemes will prevent mutual funds from reducing interest rates further. However, a further decline in interest rates is likely to be seen on bulk deposits (deposits of Rs 3 billion and above), where interest rates have fallen by more than 100 basis points since the February repo cut. Speaking to DC, Ashok Chandra, managing director and chief executive officer of Punjab National Bank, said: “Our loan to deposit ratio is 73 per cent and we have enough support to grow in credit without much growth in deposits. We also need to take care of depositors and the immediate impact of 25 basis points cut in repo rate this quarter can be managed by us.” It is likely to accelerate further in the second half of the financial year, with banks needing deposits to finance their credit growth. Secondly, banks also need to maintain their liquidity coverage ratios (LCR) and cannot be highly dependent on wholesale deposits, which have higher exit rates and negatively affects the LCR. Gupta added that rates may see further declines as they largely reflect money market rates such as certificates of deposit, where rates have fallen (by over 100 basis points) since February. The banking system’s loan-to-deposit (CD) ratio exceeds 80 percent, reflecting strong loan demand, while deposit growth remains moderate. The reluctance to reduce deposit rates is due to intense competition among banks to secure more deposits while competing with other investment avenues such as small savings schemes, mutual funds that offer higher returns than bank deposits. In response to the cumulative 100 basis point reduction in the policy repo rate, the weighted average domestic time deposit interest rate of fresh deposits decreased by 105 basis points in the same period, while the interest rate of unpaid deposits softened by 32 basis points. The weighted average lending rate of scheduled commercial banks fell by 69 basis points for new rupee loans and 63 basis points for outstanding rupee loans during February-October 2025.