Banks Reduce Deposit Rates Following RBI Repo Rate Cut

Mumbai, April 15, 2025 – In a significant move signaling shifts in monetary policy, major banks in India have begun to cut deposit rates following the Reserve Bank of India’s (RBI) recent decision to lower its repo rate by 25 basis points (bps). The State Bank of India (SBI), Bank of India, and Kotak Mahindra Bank are among the institutions reducing their fixed deposit rates, a trend encouraged by easing liquidity conditions and declining credit growth.

Context of the Rate Cuts

The decision to slash deposit rates comes after an extended period during which banks hesitated to adjust their rates amid fluctuating economic indicators. However, with the RBI’s repo rate cut occurring last week and the liquidity surplus standing at ₹2.08 trillion as of April 10, banks have found themselves in a position to decrease the rates on fixed deposits. Additionally, non-food credit growth has slowed to 10.9% year-on-year as of the end of March, almost halving compared to the previous year.

Details of the Reductions

SBI, India’s largest lender, has cut its term deposit rates by 10 bps, while Bank of India has reduced rates by up to 25 bps. Notably, popular fixed deposit schemes such as SBI’s Amrit Kalash and Bank of India’s 400-Day Special Plan have been withdrawn as part of this adjustment. Meanwhile, Kotak Mahindra Bank has reduced its deposit rates by up to 15 bps across select tenures.

HDFC Bank has not been left out from these adjustments, also lowering its savings deposit rate by 25 bps to 2.75%, now one of the industry’s lowest, closely trailing SBI’s offered rate of 2.70%.

Impacts on Banking Operations

The current environment of surplus liquidity and lower credit demand prompts banks to reconsider their deposit strategies. According to a private banker, the gradual approach to lowering deposit rates reflects banks’ need to assess customer behavior and deposit flows carefully. The banker noted, “We had the first policy rate cut in February, so it will take, maybe, another 3-4 weeks for the cuts to fully play out.”

The latest adjustments occur amid a backdrop of previous rate cut reluctance. Data indicated that while the RBI had implemented a 25 bps cut earlier, public sector banks had only reduced their deposit rates by an average of 6 bps while private banks had slightly raised them.

Factors Influencing Deposit Rate Adjustments

Several factors influence the current state of deposit rates. Banks have been experiencing pressure on their net interest margins, particularly as rates on floating rate loans (tied to external benchmarks) do not always correspond directly with deposit rate adjustments. Madan Sabnavis, chief economist at Bank of Baroda, explained that typically, 40-50% of any rate cut is transmitted to deposit rates, albeit with variations across individual banks.

As liquidity has improved due to RBI initiatives—injecting a total of ₹7 trillion since January—banks are now adjusting their lending and deposit rates accordingly. Nonetheless, there remains caution, as the industry anticipates potential pressure on margins due to rapid and successive rate cuts.

Market Outlook

Despite the recent cuts in deposit rates, analysts, including those from Emkay Research, caution that banks with a significant share of floating rate loans may face challenges, as the repricing of deposits does not always occur simultaneously with rate reductions. Current projections indicate that the cumulative impact of the repo rate cuts could lead to marginal pressure on margins.

Anil Gupta, senior vice-president at Icra Ltd, emphasized that while a downtrend in the share of savings deposits may occur, it is unlikely to drop significantly in the near term unless there is a substantial slowdown in credit growth.

As the banking sector navigates these adjustments, it remains critical for institutions to balance competitive deposit rates with the necessity of maintaining steady growth in lending and overall financial stability.

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