RBI’s 125 bps repo cut has failed to boost deposits even as credit demand continues to rise across sectors | Photo credit: AJAY VERMA
As of November 28, 2025, all scheduled banks recorded 11.42 percent and 10.19 percent year-on-year (yoy) growth in loans and deposits, respectively. However, a year ago, credit and deposit growth followed suit, with both growing by about 10.58 percent.
Deposit pressure
Against the backdrop of the RBI’s cut in the policy repo rate by 125 basis points from 6.50 percent to 5.25 percent since February 2025, banks’ deposit growth is not keeping pace with credit growth.
Due to the low returns on deposits, savers are attracted to investment funds, shares and corporate bonds, among others. So banks may not want to cut deposit rates further and undermine their deposit base.
Madan Sabnavis, Chief Economist, Bank of Baroda, said, “This situation will continue as funds are shifting from deposits to mutual funds, thus limiting the growth of deposits. Moreover, due to higher expenditure during the festival season, deposits have fallen recently.
“Credit growth is also picking up in broader segments. In addition to private credit growth, corporate credit growth is also gaining ground. Therefore, the gap between credit growth and deposit growth is likely to widen rather than narrow.”
Sabnavis noted that the open market operation (OMO) purchase of government bonds totaling ₹1 lakh crore and the US/INR Buy/Sell swap of $5 billion being executed by RBI will provide liquidity to banks to support credit demand.
Rate shifts
Interest rates on term deposits with a maturity of more than one year have fallen from 6.00/7.25 percent on December 6, 2024 to 5.85/6.60 percent on December 5, according to RBI data.
The 125 basis points reduction in repo rate has been fully passed on to external benchmark lending (EBLR) linked loans such as retail and MSME loans. Loans linked to the marginal cost of funds-based lending rate (MCLR), such as corporate loans, are gradually declining. For example, the overnight MCLR has fallen from 8.15/8.45 percent to 7.80/7.95 percent.
In a recent interview with business line, SBI chairman CS Setty noted that there is good visibility of double-digit growth in corporate loans.
“We will have double-digit corporate credit growth in Q3 (third quarter) and perhaps Q4 (fourth quarter). What this means is that as economic activity picks up, the need for corporate credit increases,” he said.
Referring to the recent superficial 25 bp cut in repo rate, the SBI chief said, “I don’t think the banks will cut deposit rates aggressively. Credit growth is robust. We will all be looking for deposits. At the same time, the 25 bp cut in repo rates would have minimal impact on margins as the full benefit of a 1 per cent cut in CRR is available.”
In his latest bi-monthly monetary policy statement, RBI Governor Sanjay Malhotra noted that bank credit growth has seen an uptick in recent months.
Industry data shows growth was supported by continued lending to retail and service sector segments, he said.
Furthermore, industrial credit growth picked up, aided by strong credit flow to micro, small and medium enterprises (MSMEs). Major industries also recorded an improvement in credit growth.
Published on December 12, 2025
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