Indian banks lift deposit and lending rates after RBI hike
Borrowers may face higher costs while savers receive uneven gains.
Overview
Indian savers are starting to earn more on some bank deposits, but the increases vary. On October 7, the raised its from 5.25% to 5.50% and moved toward tighter policy. It also raised the , and . Money available to banks then moved closer to balance, making steady deposits more valuable. Loans grew faster than deposits, increasing pressure on banks to find funds.
Banks first avoided broad deposit-rate increases to protect profits. Instead, they used and other funding. Indian Bank, ICICI Bank and Bank of India later raised rates on selected deposits. Bank of India added 10 to 20 basis points on some terms and changed the rate on its 500-day deposit. PNB and Indian Bank also raised lending benchmarks by 10 basis points. Savers may benefit, but loan rates could rise sooner. Banks face higher funding costs, and borrowers may eventually pay more.
Timeline
Selective deposit increases accompany early lending-rate repricing
Early changes show that some lending rates moved while deposit repricing remained selective. This may temporarily support banks' margins, but the available evidence does not establish that and sustained credit demand will necessarily raise future borrowing costs.
PNB and Indian Bank raise MCLR by 10 basis points as lending rates begin to move
PNB raised its overnight, one-month, three-month, six-month, one-year and three-year by 10 basis points effective November 1. Indian Bank also raised its by 10 basis points, effective November 3.
Bank of India raises selected term-deposit rates by 10 to 20 basis points
Bank of India increased rates on selected retail term deposits by 10 to 20 . It also repriced its , giving savers a concrete example of competition for longer-duration household funding.
Indian Bank and ICICI Bank selectively raise deposit rates
Indian Bank and ICICI Bank began making targeted changes to selected and maturities rather than applying a broad increase across their deposit books. The moves marked uneven early transmission of the to savers.
Banks use certificates of deposit while delaying broad retail repricing
As loan demand continued to require funding, banks turned to certificates of deposit and other instead of immediately repricing all household deposits. These instruments offered quicker access to funds, but could cost more than maintaining a stable retail deposit base.
Banks initially adjust deposit rates selectively after RBI hike
Early rate changes were uneven rather than broad-based: some banks kept most deposit rates unchanged while adjusting selected products or maturities. Available evidence does not establish that banks generally relied on existing liquidity or alternative liabilities to avoid repricing.
Banking-system liquidity begins tightening after the RBI decision
Liquidity conditions started moving away from the large surplus recorded before the policy meeting. The RBI had reported average daily of about ₹5.9 lakh crore since the previous policy, but tighter conditions increased the value of dependable bank funding.
Strong credit demand increases banks’ need to mobilise deposits
Lenders continued to face pressure to fund expanding loan books as credit demand remained strong. Rising s increased the need for stable retail deposits and pushed banks to consider and other funding channels.
RBI raises the SDF, MSF and Bank Rate to reset the policy corridor
Following the repo-rate increase, the rose to 5.25%. The and Bank Rate increased to 5.75%, placing the RBI’s at 5.25% to 5.75%.
RBI raises the repo rate to 5.50% and shifts to calibrated tightening
The raised the by 25 basis points, from 5.25% to 5.50%, its first increase in four years. The RBI also changed its policy stance from neutral to , signalling that further policy action could include another hike or a pause.