Foreign banks see higher transmission of rate cut on fresh, outstanding deposits than peers, shows RBI Bulletin

Reserve Bank of India

• Foreign banks cut deposit rates more than PSU and private banks.
• RBI may hold repo rate in February amid stable inflation and growth
• MCLR and lending rates fell after RBI's 125 bps repo rate cut since Feb 2025.

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In response to the 100 basis points (bps) rate cut by the Reserve Bank of India (RBI) between February 2025 and November 2025, foreign banks have seen a higher transmission of rates fresh and outstanding deposits than its peers in private and PSU space, according to the RBI’s January bulletin.

Data showed that foreign banks have transmitted 107 bps of rate cut on fresh deposit and 100 bps on outstanding deposit.

On the other hand, state-owned banks have seen a transmission of 101 bps and private banks of 93 bps on fresh deposit, and 33 bps for PSU banks and 34 bps for private banks on outstanding deposits.

The marginal cost of funds-based lending rate (MCLR) of banks also moderated. The weighted average lending rates on both fresh and outstanding rupee loans declined during this period.

On the deposit side, banks reduced interest rates on fresh term deposits significantly. The pass-through to the interest rates on outstanding deposits was gradual, reflecting the effect of longer tenor of term deposits at fixed rates, Bulletin said.

Since February, 2025, the MPC has reduced the repo rate by 125 bps to aid growth, with a 25 bps cut each in February and April, 50 bps in June, and 25 bps in December. However, the RBI has kept repo rate unchanged in August and October monetary policy.

The next monetary policy review of the RBI is due in February, where a large expectation is that the central bank will hold rates amid comfort on inflation and higher growth.

Moneycontrol’s poll of 14 economists, treasury heads, and market participants have said that RBI’s Monetary Policy Committee (MPC) is likely to maintain the status quo on interest rates in its February policy review. The rate-setting panel is likely to draw comfort from the higher growth and inflation averaging around the medium term target of 4 percent, the majority of experts said.