Bank deposit rates fall as fresh lending rates rise

Mumbai: The spread between fresh deposit rates and new loan rates widened in August, according to Reserve Bank of India data. Banks paid less on fresh term deposits, while the average rate on new loans increased. The gap between the two rates expanded by 27 basis points in a month. Public and private sector banks both offered lower interest on new deposits compared to earlier.

The average rate on fresh rupee term deposits dropped 18 basis points to 5.67% in August, while the weighted average lending rate on fresh rupee loans rose nine basis points to 8.61%. The decline in deposit rates was consistent across public and private banks. However, the rise in lending rates was more pronounced in private banks, where the average rate on fresh loans climbed 10 basis points to 9.19%.

At public sector banks, the average rate on fresh loans increased by one basis point to 7.99%. The divergence in rates has widened since March, when banks significantly raised deposit rates. The average rate on fresh deposits fell 40 basis points from 6.07% in March, while the average rate on fresh loans surged 21 basis points from 8.40%.

Not all loan types experienced the same increase. Fresh education loan rates rose 16 basis points to 9.30%, while rates on other personal loans climbed 17 basis points to 10.41%. Conversely, fresh vehicle loan rates decreased 19 basis points to 9.57%, and housing loan rates eased by two basis points to 7.61%. Existing business loan rates showed minimal change.

The weighted average rate on outstanding loans fell by one basis point to 8.96% in August, and the rate on outstanding term deposits dropped two basis points to 6.56%. Additionally, the one-year median marginal cost of funds-based lending rate decreased to 8.61% in September from 8.70% in August. Most loans linked to external benchmark rates accounted for 68.2% of total outstanding floating-rate rupee loans, with MCLR-linked loans constituting 29.6%.