RBI’s 125-basis-point repo cut hasn’t boosted deposits, even as credit demand continues strengthening across sectors.
| Photo Credit:
AJAY VERMA
With bank credit growth outstripping deposit growth, the gap between them has widened to 123 basis points (bps) as of November 28 a far cry from the even-steven situation that prevailed a year ago.
As of November 28, 2025, all scheduled banks clocked a year-on-year (y-o-y) credit and deposit growth of 11.42 per cent and 10.19 per cent, respectively. However, credit and deposit growth moved in lockstep a year ago, with both growing at about 10.58 per cent.
Deposit pressure
In the backdrop of the RBI cutting the policy repo rate by 125 bps from 6.50 per cent to 5.25 per cent since February 2025, Banks’ deposit growth is not keeping pace with credit growth.
With low returns on deposits, depositors are gravitating towards mutual funds, equities and corporate bonds, among others. So, banks may not want to cut deposit rates further and haemorrhage their deposit base.
Madan Sabnavis, Chief Economist, Bank of Baroda, said: “This situation is going to continue as funds are moving away from deposits to mutual funds. So, the growth in deposits is getting constrained. Moreover, in recent times, because of higher spending during the festival season, deposits have come down.
“Credit growth is also picking up across wider segments. So, besides retail credit growth, corporate credit growth is also gaining traction. Therefore, the gap between credit and deposit growth is likely to widen rather than narrow down.”
Sabnavis observed that the open market operation (OMO) purchase of Government Securities aggregating ₹1 lakh crore and the $5 billion US/INR Buy/Sell swap being conducted by RBI will provide Banks’ liquidity to support credit demand.
Rate shifts
Interest rates on term deposits of more than one-year duration have declined to 5.85/6.60 per cent as on December 5, from 6.00/7.25 per cent as on December 6, 2024, per RBI data.
There has been a full pass-through of the 125 basis points cut in the repo rate to external benchmark lending rate (EBLR) linked loans, such as retail and MSME loans. Loans linked to the marginal cost of funds-based lending rate (MCLR), such as corporate loans, are coming down gradually. For example, the overnight MCLR has come down to 7.80/7.95 per cent from 8.15/8.45 per cent.
In a recent interview with businessline, SBI Chairman CS Setty noted that there is a good visibility of a double-digit growth rate in corporate credit.
“We will have a double-digit corporate credit growth in Q3 (third quarter) and maybe Q4 (fourth quarter). What this means is that as the economic activity picks up, the corporate credit requirement goes up,” he said.
Referring to the recent shallow repo rate cut of 25 bps, the SBI Chief said, “I don’t think banks will cut deposit rates aggressively. Credit growth is robust. All of us will be looking for deposits. At the same time, the 25 bps repo cut would have minimal impact on margins as the full benefit of 1 per cent CRR cut is available.”
In his latest bi-monthly monetary policy statement, RBI Governor Sanjay Malhotra noted that Bank credit growth has seen an uptick in recent months.
Sector-wise data reveals that the growth was supported by sustained lending to retail and service sector segments, he said.
Further, industrial credit growth firmed up, aided by buoyant credit flow to micro, small and medium enterprises (MSMEs). Large industries also recorded an improvement in credit growth.
Published on December 12, 2025
