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Banks recalibrate rates on saving deposit with a 25 bps cut

ICICIdirect Research 17 Apr 2025 DISCLAIMER

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.

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