Deposit Rate Cuts on Cards as Loans Cool, Repo Rate Cut Looms

Deposit rates may begin to come down starting April as lenders move to protect margins, at a time of easing credit demand and expectations of another repo rate cut.

- Shayan Ghosh

Most banks did not change their deposit rates after the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points (bps) in February.

Consequently, lending rates for corporate customers remained largely unchanged.

Banks also worried that lower rates may drive out deposits in a quarter where loan demand usually peaks.

Bankers said that another rate cut in April-which looks likely after the 3.6% inflation print for February-would necessitate deposit rate cuts, the only way to pass on the lower costs to more borrowers.

"The rate of interest in term deposits will remain elevated in this quarter (Q4 FY25), but definitely from 1 April onwards, the interest rates on deposits should be coming down in line with the fall in repo rate," said Rajneesh Karnatak, chief executive, Bank of India. "Once that starts happening and the rate of interest on the deposits starts coming down, there will be some improvements in net interest margins (NIMS)," Karnatak said in an interview earlier this month.

The central bank's monetary policy committee meets from 7 to 9 April.