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Banks recalibrate rates on saving deposit with a 25 bps cut


Following RBI's twin rate cut and continued challenge of garnering deposits at competitive cost, large private banks have started pivoting liabilities strategy with reduction in saving deposit rates. HDFC Bank began the trend announcing 25 bps reduction in rates offered on saving deposits, followed by Axis Bank and a leading private bank. Simultaneously, banks like SBI, BOI and Yes Bank have trimmed fixed deposit (FD) rates across select tenors.
Given ~60% of loan portfolios linked to External Benchmark Lending Rate (EBLR), wherein transmission of rate cut is automatic, large private banks are estimated to witness an impact on yields. To counterbalance this, banks have lowered rates on selective term deposits and trimmed SA rates by 25 bps (covering ~24–28% of deposit base) wherein accrual of benefit will be immediate.
Factoring in reset cycle of EBLR-linked loans, impact on NIMs is expected to be 1-3 bps in Q1FY25, with full year impact estimated at just ~10 bps.
Thus, SA rate cut, along with selective downward revisions in term deposits, is a tactical response to protect margins, which are under pressure in a declining rate regime. The adjustments suggest a structural recalibration by private banks to stay ahead of the interest rate transmission cycle and lower the impact of reversal in rate cycle.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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