Lower real interest rates have not hurt deposit growth in India: SBI Research
Mumbai, August 5
Lower real interest rates have not hurt deposit mobilisation in India, with deposit growth improving despite a decline in real interest rate, according to an SBI Ecowrap report.
The report said the weighted average domestic term deposit rate on fresh deposits declined by 63 basis points, while the rate on outstanding deposits softened by 51 basis points following the cumulative 125 basis points reduction in the policy repo rate between February and June 2026.
During the same period, the real interest rate fell from 2.52 per cent in January 2026 to 0.87 per cent in June 2026.
Despite this, deposit growth improved from 12.3 per cent in January 2026 to 13.3 per cent in June 2026. Excluding FCNR(B) deposits, deposit growth stood at 13.0 per cent in June, indicating that deposit mobilisation remained resilient even with lower real returns, the report said.
"There is no empirical evidence to suggest that in India real interest rates and deposits growth are not correlated," the report said.
It added that deposits are influenced more by the existing rate structure, and that the improvement in deposit growth suggests mobilisation remained resilient despite lower real returns.
The report also highlighted the RBI's foreign exchange management, noting that FCNR(B) inflows of USD 36.7 billion till July 31 enabled the central bank to recoup around USD 20 billion in foreign exchange reserves (foreign currency assets) and vacate USD 13 billion of outstanding short-term forward positions till June-end.
According to the report, the RBI's policy statement also exhibited a predominantly dovish communication profile based on its Natural Language Processing (NLP)-based analysis. The Dovish Communication Index increased to 50.9 per cent from 40.83 per cent in the previous policy, while the Uncertainty Communication Index declined to 25.4 per cent from 34.8 per cent.
The report further said the RBI's proposed measures to standardise loan pricing across regulated entities are expected to enhance transparency, strengthen monetary policy transmission and improve consumer protection.
It also noted that the resumption of on-tap licensing for Urban Cooperative Banks could support financial inclusion, while the review of concentration risk guidelines for Rural Cooperative Banks addresses structural challenges in the sector.
Finally, the report said banking sector health indicators remained strong over the past year, with improvements in capital adequacy and asset quality.
— ANI
Reader Comments
This makes sense from a macro perspective. Indians have a strong savings culture and we don't move money based on just a few basis points. Plus with the economy growing at this pace, more people are earning and saving more. The FCNR(B) inflows of $36.7 billion is also a good sign for our forex reserves. Solid analysis by the SBI team 👏
The data on deposit growth being resilient despite lower real rates is counterintuitive but plausible. It reflects the "income effect" - when rates drop, some people actually save more to reach their target corpus. Also, with inflation moderating, even at 0.87% real return, the actual purchasing power of savings isn't eroding as fast. India's banking system looks well managed.
My grandmother still keeps all her savings in a post office FD because she doesn't trust anything else. This report is probably true for urban India, but in rural areas, people park money in banks more for safety than returns. Anyway, good to see deposit growth improving 🇮🇳
I think there's a bit of a concern here. Just because deposit growth hasn't slowed doesn't mean it's a good thing. Lower real interest rates mean savers are effectively getting poorer returns. It's the elderly and risk-averse who suffer. The RBI should be careful not to keep rates too low for too long, else we may see a shift towards gold or real estate, which aren't as productive.
The part about RBI's dovish communication index increasing to 50.9% is interesting - suggests they're signaling
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