The Reserve Bank of India (RBI) has lowered the repo rate by 125 basis points (bps) in this rate cut cycle and governor Sanjay Malhotra reiterated that rates will remain lower for longer. While banks have lowered both lending and deposit rates, these were not entirely in tandem.
Amid all this, credit growth in the banking system continues to outpace deposit growth. Mint takes a look at what some recent data on credit and deposit released by RBI say about the banking system and its customer base.
Have lending and deposit rates fallen in tandem as a result of the rate cuts?
The weighted average lending rates of banks on fresh loans fell 66 basis points (bps) in the past year till January 2026 and stood at 8.67%. The steepest transmission was seen in foreign banks, where lending rates fell 148 bps to 7.81% in the same period.
While public sector banks saw a 54 bps dip to 8.05%, private sector banks saw a decline of 88 bps to 9.32%. On the deposit rate side, the banking system’s deposits pay 96 bps lower than they did in January 2025, as per RBI data.
Here too, foreign banks have outstripped peers in cutting deposit rates. Jahnavi Prabhakar, economist at Bank of Baroda said in a note on 3 March that transmission has been more pronounced for the lending rates than deposit rates.
Do repo rate changes immediately impact all lending rates?
RBI uses changes in the repo rate to regulate lending rates in the financial system. Following RBI’s push in 2019, banks now use an external benchmark like the repo rate to price retail and small business loans. These loans see near immediate change in interest rates as and when RBI revises the repo rate.
Loans to companies are still linked to the marginal cost of funds-based lending rate (MCLR), an internal benchmark. Both of these rates are floating, meaning that they change throughout the tenure of the loan.
As of September 2025, 65% of all floating rate loans were on external benchmarks, up from 59% a year ago and 56% two years ago. Since India’s public sector banks have more loans to companies than private sector peers, these banks have a lower share of external benchmark linked loans, at 49.8%.
However, September data showed that for the first time ever, external benchmark loans account for a larger chunk of the state-owned banks’ books than MCLR.
Is the gap between deposit and credit growth still prevalent in the banking sector?
Fresh data released by RBI show that credit growth was at 13.4% as on 15 February, while deposit growth lagged at 11.2%,. This data is released every fortnight and the latest one was released on 27 February.
The gap has widened over the past year, with the difference in growth rates at 64 bps in the same period last year. RBI governor Sanjay Malhotra recently told The Economic Times in an interview that banks have the ability to create deposits through credit. He said that growth rates in deposits are lower than credit growth because of the larger deposit base of around ₹250 trillion, while credit is at ₹205 trillion.
What are some of the trends in deposit and credit as per RBI’s quarterly data?
India’s state-owned banks have more or less held their market share in loans and deposits. These public sector banks have a 57.5% share in deposits, while private sector banks have a 36.1% share, showed latest data as of 31 December. This is comparable to 57.8% and 35.9% in the same period last year.
The shares are somewhat similar in credit as well. State-owned banks have a credit market share of 54.4%, while private sector banks are at 40.7%. In the same period last year, these were 53.5% and 41.5%, respectively.
An analysis by Kotak Institutional Equities on 2 March showed that household deposits still dominate but are growing modestly, while deposits from non-individuals are marginally faster than that of individuals. It also found that public and private bank deposit growth is converging, CASA (current and savings account) deposits remain weak and term deposit repricing has begun.