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Banks reduced TD (or fixed deposit/FD) rates by 35-40 basis points (bps) and 25 bps, respectively, on select maturity buckets
Banks have started cutting term deposit (TD) rates as their liquidity has swung into a surplus even as credit demand is traditionally muted in the first quarter.
Private sector banks such as HDFC Bank and Yes Bank have kicked off the deposit rate cut cycle. These Banks reduced their TD (or fixed deposit/FD) rates by 35-40 basis points (bps) and 25 bps, respectively, on select maturity buckets.
Banking system’s liquidity, which had an average daily deficit of about ₹1.30 lakh crore in March, has turned into surplus is helping banks cut deposit rates. The surplus as on April 2nd was at about ₹1.93 lakh crore.
Sanjay Agarwal, Senior Director, CareEdge Ratings, observed that the deposit rates of banks, especially for retail, have been steady for a few months. Banks have absorbed the FD (fixed deposit) rates at current levels.
“Further, the yields on the lending side are also static with a downward pressure. It is expected that going forward as liquidity improves, banks will continue to work towards lowering their deposits rates,” he said.
Anshul Chandak, Head of Treasury, RBL Bank, said: “When the RBI started rate cut cycle in February, Banks couldn’t cut FD rates then due to fight for deposits for year end and tighter liquidity conditions.
Huge surplus by May
“Now, in the new financial year, we expect durable liquidity to turn into a huge surplus by May and thus expect banks to cut FD rates by 25-50 bps in the retail category over three months.”
He opined that this along with expected RBI rate cutting cycle will lead to faster monetary policy transmission. If durable liquidity hits ₹3 lakh crore plus surplus then bulk deposit rates could fall faster than retail rates.
“Whilst deposit challenges do persist, which is largely due to uneven distribution of liquidity in the system, retail deposit rates ought to come down and we can expect more banks joining the stream. Q1 will also be a slack season for credit growth so demand for funds will be relatively less. Add to that the system liquidity turning positive, the response from lenders will be to lower cost of acquisition,” RK Gurumurthy, Treasurer,Karnataka Bank.
RBI cancels VRR; OMO sees huge demand
Meanwhile, on a review of evolving liquidity conditions, RBI said it will not to conduct the 14-day main (Variable Rate Repoauction under liquidity adjustment facility) operation for the upcoming fortnight of April 4-17, 2025.
Bankers said the liquidity in the banking system will further get bolstered by the RBI’s open market operation (OMO) purchase auction of Government Securities (G-Secs).
At the OMO auction, Banks offered G-Sec aggregating ₹80,820 crore (face value) against the notified amount of ₹20,000 crore.
Arvind Kanagasabai, Executive Vice President (Treasury), Tamilnad Mercantile Bank, said Banks’ are offering G-Secs from their held-to-maturity book and booking profit at the OMO auction.
Published on April 3, 2025
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