Fresh deposit rate repricing overtakes repricing of lending rates: Eco Survey

Fixed Deposit

As the Reserve Bank of India has increased its benchmark repo rate by 250 basis points since May 2022, data, weighted average domestic term deposit rates have also shot up by 224 basis points since then.

This sharp transmission in rates reflects on the new or fresh deposits raised by scheduled commercial banks, according to the Economic Survey 2024 published on July 22.

However, with respect to the stock of deposits already existing in the system, rates may not have moved much. The survey indicates 1.90 percent or 190 basis points increase in weighted average domestic term deposit rates for outstanding rupee deposits.

In comparison to deposit rates, lending rates haven’t witnessed much of a reprising. According to Economic Survey data. Weighted average lending rates for fresh or new rupee loans have risen 188 bps from May 2022 – May 2024, while weighted average lending rates for outstanding loans or existing loans has increased by 114 bps during this period.

Bankers say the mismatch between deposit rate hikes and increase in lending rates may be attributed to the stiff liquidity conditions and steep competition in the market.

“In the initial phase of repo rate hikes, most banks enjoyed all-time high profitability. But as the liquidity situation became tighter and we had to ensure that deposit growth can keep pace with loan growth, we had to roll out higher deposit rates. On the lending front, pricing turned favourable to borrowers in the last 6 – 8 months as banks are willing to take some hit on lending rates to ensure that growth is good,” said a CEO of a private bank while explaining why transmission is higher on deposits vis-à-vis loans.

Bankers believe this trend may continue for a year or so. In fact, Economic Survey reveals that transmission on the lending side has been much slower in comparison to deposits, suggesting that banks may continue to offer higher deposits rates and stable lending rates for a foreseeable future.

According to the survey, WADTDR on fresh deposits has increased by 0.14% from April 2023 – May 2024, while WADTDR on existing deposits has increased 0.73 percent during this period, suggesting that more deposit holders are seeing an increase in their deposit rates as they come up for renewal. With respect to loans during this period, data indicates that WALR on outstanding rupee loans has increased by 0.11 percent whereas WALR on fresh loans has increased by a smaller proportion of 0.05 percent 0.1 percent is 100 basis points.