Deposit rate cuts likely to be moderate in current cycle

Elevated credit-deposit ratio, LCR norms may weigh on banks' decision

- ANUPREKSHA JAIN & ABHIJIT LELE

The cut in deposit interest rates during the current easing cycle is expected to be moderate compared to the previous one because the highest cut in the policy repo rate is anticipated to be about 100 basis points (bps), as against 250 bps in the previous cycle.

In addition, the credit-deposit (CD) ratio will remain elevated for major banks. Also, regulatory factors, such as the revised liquidity coverage ratio (LCR) norms and the potential increase in deposit insurance coverage, will weigh on lenders, thus limiting their ability to implement significant deposit rate cuts.

The monetary policy committee of the Reserve Bank of India (RBI), in its February meeting, reduced the repo rate by 25 basis points.

In April, it reduced the policy repo rate by another 25 bps to 6 per cent.

The committee also changed the policy stance to "accommodative", signaling the likelihood of further easing in the coming months.

Amid global uncertainties stemming from American tariff policies, economists are anticipating a deeper rate-cut cycle in the current easing phase, ranging between 75 and 100 bps.