Bank lending, deposit rates likely to ease gradually as funding costs soften: Report
New Delhi, July 15
Lending and deposit rates are expected to moderate gradually in the coming months as high-cost legacy deposits mature and liquidity conditions remain comfortable, although competition for retail deposits and banks' efforts to protect margins are likely to keep the pace of decline measured, according to a CareEdge report.
"Going forward, lending and deposit rates are expected to moderate gradually as legacy high-cost deposits continue to mature and liquidity remains comfortable. However, competition for retail deposits, banks' focus on margin preservation and the pace of deposit repricing are likely to keep movements in both fresh and outstanding spreads relatively modest in the near term," the report said.
The report said the gradual easing in funding costs is expected to keep fresh lending spreads under mild downward pressure as monetary policy transmission continues, while banks are likely to balance lower funding costs with the need to preserve margins.
Looking ahead, CareEdge Economics expects the benchmark 10-year government security (G-sec) yield to average 6.8-6.9 per cent during the year, assuming an average Brent crude price of USD 90 per barrel. Softer bond yields are expected to support banks through treasury gains, improve funding conditions in debt markets and reduce borrowing costs for corporates.
The report also said recent Reserve Bank of India (RBI) measures, including incentives for FCNR(B) deposits, easing of ECB norms for public sector undertakings, expansion of the Fully Accessible Route (FAR) for G-secs and tax exemptions for FIIs and FPIs, have helped contain external financing pressures.
According to the report, fresh lending rates of scheduled commercial banks (SCBs) stood at 8.51 per cent in May 2026, while fresh domestic term deposit rates were 5.84 per cent. The spread between fresh lending and deposit rates narrowed by 4 basis points month-on-month to 2.67 per cent.
Meanwhile, outstanding lending rates eased to 8.97 per cent and outstanding deposit rates declined to 6.57 per cent, resulting in a marginal widening of the outstanding spread to 2.40 per cent.
The report also highlighted that bank credit remained strong, growing 17.7 per cent year-on-year to Rs 215.5 lakh crore as of June 15, 2026, driven by retail loans, particularly gold and vehicle loans, as well as steady MSME lending. Deposits rose 12 per cent year-on-year to Rs 258.4 lakh crore, supported mainly by growth in time deposits.
— ANI
Reader Comments
Finally some relief for home loan borrowers! I've been tracking rates since last year and this gradual easing is much needed. But the report says competition for retail deposits will keep it measured - so don't expect a drastic drop overnight. Still, every basis point counts in today's economy. 😊
Interesting analysis from CareEdge. The 8.51% lending rate vs 5.84% deposit rate spread of 2.67% seems reasonable. But I worry about banks squeezing margins too thin if they compete too aggressively for deposits while lowering lending rates. The RBI's measures like FCNR incentives seem like smart moves to stabilize external funding.
As a small business owner, this is encouraging for MSME lending. We've been paying around 9-10% for working capital loans. If rates ease even by 25-50 bps, it could make a significant difference to our cash flows. Just hope the transmission is faster this time around - banks often take their sweet time passing on RBI cuts!
The 10-year G-sec yield forecast of 6.8-6.9% with crude at $90 is a good indicator. But let's not forget geopolitics can disrupt everything. If oil spikes further due to Middle East tensions, the RBI might not be able to maintain this comfortable liquidity. Still, for now this is a positive outlook for borrowers and the bond market.
Good to see credit growth at 17.7% - shows the economy is on track. But deposit growth of 12% is lagging behind. This mismatch could ultimately limit how much banks can lower rates. They need deposits to fund loans! Retail depositors
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