Depositors’ savings plans are set to be affected as leading banks have cut interest rates on fixed deposits and savings accounts, a move that was expected after the Reserve Bank of India slashed the repo rate by 25 basis points (bps) last week.
The RBI’s saying that liquidity will be maintained at a surplus level enabled lenders to cut deposit rates even though the deposit mobilisation challenge persists.
The country’s largest lender State Bank of India (SBI) has cut the fixed deposit rate on the 1-3 year tenure by 10 bps (as reflected in table below). These rate cuts will be effective April 15. Similarly, the country’s largest private lender HDFC Bank slashed the savings account interest rate by 25 bps to 2.75 per cent, effective April 12.
“Rate cuts this time will be broad-based and banks that have good CASA (current account and savings account) ratio will lead the race. Small finance banks will also follow suit as the cost of funds may remain elevated if they don’t, impacting the net interest margin.
“Banks that are able to reduce the cost of deposits will also be able to attract good borrowers, which will have a cascading effect,” said RK GuruMurthy, Treasurer, Karnataka Bank.
Two senior private bank officials said deposit rates are likely to fall across many banks by this month end. This means banks are ensuring that repo rate cut transmission happens.
Last week, RBI Governor Sanjay Malhotra had said the regulator will ensure keeping liquidity at surplus mode at the level of around one per cent of bank deposits.
“I will not pin myself down to exactly 1 per cent, but yes that is the kind of range we aim to maintain. If more is required, we will inject more liquidity and if less liquidity is required, we shall absorb. Main goal is to ensure proper transmission of repo rate cuts into the interest rates,” he said.
Another private bank Treasury Department official said smaller banks won’t be in a hurry to cut the deposit rate just yet, but the others will follow.
PSBs lead
However, what can cheer customers is the lending rate cuts.
As the RBI reduced the repo rate last week, large lenders also reduced interest rates on loans linked to repo rate and other external benchmark, public sector banks took the lead in reducing loan rates vis-a-vis private peers.
SBI, for instance, reduced the external benchmark linked loan rates (EBLR) by 25 bps to 8.65 per cent, while reducing the repo linked lending rate (RLLR) by 25 bps to 8.25 per cent. The new rates will be implemented effective April 15.
Punjab National Bank and Bank of India reduced the RLLR by 25 bps to 8.85 per cent each. Indian Bank and Bank of Maharashtra reduced the RLLR by 35 bps and 25 bps to 8.70 per cent and 8.80 per cent, respectively.
In a recent businessline Current Account podcast, ICRA Ratings senior vice-president Anil Gupta had said the repo rate cuts would lead to lower borrowing cost for corporates and also retail borrowers.
However, the pace of transmission could be different across deposit and loan products.
“…We believe deposit rate cut will be more calibrated for retail segment and hence a gradual reduction in cost of funds will happen over a period of time, which will reflect in a slower transmission on the MCLR (marginal cost of funds based lending rate) linked loans for banks. MCLR rates could change by July-August for banks,” he said.
Published on April 14, 2025
