Banks across the country have reduced interest rates on fixed deposits to their lowest levels in over two years, signaling a broader shift in the interest rate environment and reflecting ample liquidity in the financial system.
According to data from the Reserve Bank of India and commercial bank disclosures, the average return on one-year retail term deposits has dropped to levels last seen 25 months ago.
The average interest rate on one-year fixed deposits has fallen to around 6.4 percent, down from a peak of 7.2 percent observed in late 2023. Leading private and public sector banks, including State Bank of India, HDFC Bank, and ICICI Bank, have all revised their deposit rates downward over the past two months.
Analysts attribute the decline to a combination of factors, including a slowdown in credit demand, high levels of liquidity within the banking system, and expectations that the central bank may have reached the peak of its interest rate hiking cycle.
“With inflation gradually easing and monetary policy turning more accommodative globally, banks are adjusting their deposit rates accordingly,” said Mahesh Desai, senior economist at Axis Research. “The cut in deposit rates also reflects the fact that banks are not in urgent need of funds at the moment.”
While the move benefits borrowers by keeping lending rates stable or even slightly lower, it has come as a disappointment for millions of retail savers and senior citizens who rely on fixed deposit interest as a source of income.
Financial advisors are now urging depositors to consider diversifying their investments into debt mutual funds, government bonds, or hybrid instruments to seek better returns.
The decline in deposit rates also comes at a time when real interest rates the rate of return after adjusting for inflation are narrowing, making traditional savings less attractive.
With the Reserve Bank of India maintaining a cautious stance and global economic uncertainty persisting, experts believe that deposit rates may remain subdued in the near term, unless inflation resurges or credit growth sharply picks up.
Written By Ian Maleve
