Industry Odisha Bureau, Oct 31: State-run lenders cut fresh deposit rates sharply, yet still pay savers more than private banks.
PSU banks cut rates on fresh term deposits sharply in September, RBI data shows. Their weighted average rate fell 10 basis points to 6.10%. Private banks trimmed theirs by just six basis points to 5.76%. The data, released on Friday, also shows a split on loan pricing.
State-run lenders lowered fresh rupee loan rates by six basis points to 7.93%. Private banks held theirs steady at 9.19%. Even so, PSU banks still pay 34 basis points more on fresh deposits. They also charge 126 basis points less on fresh loans. These are weighted averages, not uniform cuts across every product or borrower. Loan mix and borrower profiles can also shape the gap.
The monthly picture can mislead, however. Between June and September, private banks cut fresh deposit rates by 45 basis points. PSU banks cut theirs by only 24 basis points over the same period. So private lenders moved faster earlier, while PSU banks caught up in September.
Across the system, the weighted average lending rate on fresh loans fell 10 basis points. It eased to 8.51% from 8.61% in August, signalling cheaper new borrowing. Foreign banks led the decline, cutting fresh loan rates 22 basis points to 7.76%. Not every borrower, though, saw an identical reduction.
Existing borrowers saw no monthly relief. The rate on outstanding rupee loans stayed flat at 8.96%. Old loans reprice slowly because of fixed contracts, reset dates and long maturities. Over a year, however, outstanding loan rates fell 30 basis points from 9.26%. Fresh loan rates, by contrast, rose 12 basis points from 8.39% a year earlier. Changes in lending mix and earlier rate moves can explain such divergence.
Deposits follow a similar pattern. The system-wide fresh term deposit rate slipped six basis points to 5.61%. Outstanding deposits eased just one basis point to 6.55%. Fixed deposits keep their original rate until maturity or renewal. That means lower fresh rates trim overall funding costs only gradually. PSU banks’ outstanding deposit cost fell to 6.61% from 6.91% a year earlier. Private banks saw a 25-basis-point drop to 6.66%.
Loan benchmarks are also shifting. The median one-year MCLR fell six basis points to 8.55% in October. According to the report, the RBI raised its repo rate to 5.50% that month. The reported move was a 25-basis-point hike. Banks are expected to gradually factor the higher policy rate into pricing.
For banks, the gap between fresh loan and deposit rates is not their margin. Profitability also depends on funding mix, asset quality, loan growth and repricing schedules. For savers, lower fresh rates mean smaller returns on new or renewed deposits.
September’s data shows transmission is gradual, not uniform. Funding structures, loan pricing and competition decide how quickly rates move through the system.
