NEW DELHI: The spread between the outstanding weighted average lending rate and the weighted average domestic term deposit rate for banks continued to tighten, narrowing by 5 basis points (bps) month-on-month (M-o-M) in March to a 10-year low of 2.71 per cent, CareEdge Ratings said in its research report. It further noted that in March 2025, fresh spreads declined by 22 bps to 2.7 per cent.
The report highlighted that the spread on fresh loans for private banks fell by 10 bps to 3.63 per cent, while for state-owned banks, it declined by 3 bps to 1.65 per cent, with private banks maintaining a higher spread.
Moreover, the outstanding spread between lending and deposit rates for state-owned banks has also been steadily narrowing over the past year, decreasing by 1 bp M-o-M to 1.93 per cent as of March 2025 — a decadal low. Similarly, private banks witnessed a M-o-M decline of 4 bps in their spread, to 3.78 per cent.
“Private and public sector banks saw lending rates decline by 4 bps and 1 bp in March 2025, to 10.71 per cent and 9.09 per cent, while keeping outstanding deposit rates steady at 6.93 per cent and 7.16 per cent,” the rating agency said.
This decline is driven by a reduction in high-yield assets such as unsecured personal loans and microfinance institutions, along with the Reserve Bank of India’s (RBI’s) repo rate cut to 6 per cent, prompting banks to adjust their lending rates. Meanwhile, outstanding deposit rates remained flat for both public sector and private banks, at 7.16 per cent and 6.93 per cent, respectively.
The one-year median marginal cost-based lending rate remained flat at 9.09 per cent, as state-owned and private banks held steady at 9.08 per cent and 10 per cent, respectively, while foreign banks saw a 15 bps rise to 7.93 per cent.
Overall credit and deposit growth rates declined marginally during the fortnight ending April 18, 2025. Although credit offtake rose by 10.3 per cent year-on-year (Y-o-Y) during the period, it was sharply lower than the 15.3 per cent growth recorded in the previous year. The report attributed the slowdown to a high base effect and RBI’s commentary on the elevated credit-to-deposit ratio.
“Muted growth across segments and typical behaviour at the beginning of the financial year,” the rating agency said.
Meanwhile, deposits reached ₹228.6 trillion as of April 18, growing by 10.2 per cent Y-o-Y — lower than the 13.3 per cent growth (excluding the merger impact) recorded last year.
The recent repo rate cuts are expected to influence both lending and deposit rates for banks. Rate cut transmission was faster in private banks owing to a higher share of external benchmark lending rate-linked loans (including both repo-linked and T-Bill-linked loans) compared to state-owned banks. This is likely to further increase pressure on interest margins.
Source: Business Standard
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