Archive · 8 Oct 2026
RBI Rate Hike May Boost Margins but Delay Deposit Increases
The Reserve Bank of India raised its main interest rate by 25 basis points.
Banks have extra money, partly because they attracted deposits from Indians living abroad, so they may not need to raise the rates they pay ordinary savers right away.
Some loans tied directly to the RBI’s policy rate can become more expensive sooner.
That could help banks earn more, although money sitting in lower-yield investments may reduce the benefit.
Experts expect deposit rates to rise later if banks need to compete harder for funds.
The RBI says it is working to reduce the extra money in the banking system.
One finance company, Bajaj Finance, has already increased some fixed-deposit rates.
The reports give different dates and amounts for the liquidity surplus, reflecting separate measurements.
The RBI raised its repo rate by 25 basis points to 5.50%, but surplus liquidity may delay banks’ deposit-rate increases.
Reports cite different liquidity readings: one said ₹4.98 lakh crore on October 6, while another put it at ₹4.7 trillion on September 30 after a ₹9.85 trillion peak on September 15.
FCNR(B) inflows have added to banks’ deposits; by September 18, the cited swap windows had attracted $143.6 billion, 93% through FCNR(B) deposits.
Analysts expect faster lending-rate adjustments for external-benchmark-linked loans and say the rate move could support bank margins, though surplus funds parked at lower yields may weigh on them.
The RBI says liquidity should be absorbed over time using measures including reverse repos, bond operations and swaps; one lender, Bajaj Finance, has already raised fixed-deposit rates.
- Who
- The Reserve Bank of India, Indian banks, depositors and borrowers; analysts and bankers commenting on the rate change.
- What
- The RBI’s 25-basis-point repo-rate hike may affect lending rates and bank margins sooner than banks’ deposit rates because liquidity is abundant.
- When
- The rate hike was announced on Wednesday; the articles cite liquidity and deposit data from June through October.
- Where
- India.
- Why
- FCNR(B) inflows and other factors have left banks with surplus liquidity, reducing their immediate need to compete for deposits.
Margin Benefits
Risks and Delays
Effect on bank profitability
Margin Benefits
Analysts said lending yields could rise faster than deposit costs, supporting bank margins, especially for private banks with more external-benchmark-linked loans.
Risks and Delays
Surplus funds parked in lower-yielding market instruments can create negative carry, and the benefit depends on how quickly banks deploy funds and control credit costs.
Timing of deposit-rate changes
Margin Benefits
Some observers expect banks to raise deposit rates once surplus liquidity is absorbed and competition for domestic deposits increases, potentially after December.
Risks and Delays
With abundant liquidity, banks may keep retail deposit rates steady for now; reports differ on when the surplus will ease and how quickly rates will adjust.
- Repo rate
- The RBI raised it by 25 basis points to 5.50%.
- Liquidity figures
- One report cited ₹4.98 lakh crore on October 6; another cited ₹4.7 trillion on September 30, following a ₹9.85 trillion peak on September 15.
- FCNR(B) swap-window uptake
- $143.6 billion by September 18 across three windows; 93% came through FCNR(B) deposits.
- Rate transmission
- Experts said deposit-rate changes may take months; an RBI deputy governor said policy-rate transmission typically takes about a couple of quarters.
- Lending and deposit rates
- RBI data cited in the reports showed fresh-loan WALR rose 8 basis points and domestic term-deposit WADTDR fell 28 basis points during July-August.
- Potential margin effect
- ICICI Securities estimated a 25-basis-point repo hike could expand industry NIMs by 14-15 basis points.
- Bajaj Finance deposit rates
- It raised rates by 15-40 basis points across 12- to 60-month tenures, effective Wednesday; the highest stated cumulative rate became 7.75%.
- RBI liquidity tools
- The reports cite variable-rate reverse repos, open-market operations, sell/buy swaps and foreign-exchange intervention.
