The Reserve Bank of India decision to cut interest rate brings relief to borrowers, but savers and depositors face a less rosy outlook. Following the 25-basis point reduction in the Repo rate, banks are likely to slash fixed deposit rates, building on the 50-basis point total reduction in the last two months. This move will result in lower returns on bank deposits, affecting individuals and investors who rely on fixed income streams. When the RBI cut the Repo rate by 25 basis points in February, banks generally did not go for an across-the-board reduction in deposit rates. Public sector banks reduced deposits rate by only 6 bps, and foreign banks reduced 15 bps, while private banks increased rate by 2 bps. Senior citizens who rely interest income are likely to be particularly impacted by the reduction in deposit rates. The weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding deposits increased by 253 bps and 199 bps, respectively, during the recent tightening cycle, i.e., May 2022 to January 2025. Soon after the RBI cut the rate on Wednesday, Kotak Mahindra Bank revised its fixed deposit (FD) interest rates, reducing them by up to 15 basis points across select tenures. The revised rates are effective from April 9, 2025. The bank now offers interest rates ranging from 2.75 per cent to 7.30 per cent for regular depositors and from 3.25 per cent to 7.80 per cent for senior citizens. Other banks are expected to follow suit in the coming days. “Fixed deposit rates may decline too, and it would be prudent for investors to capture the FD rates before they fall,” said Vijay Kuppa, CEO, InCred Money.” If inflation remains under control and growth continues to be a concern, there could be further rate cuts by the RBI in future policies aimed at revving up the economy. For consumers, this means cheaper home and auto loans and a decline in deposit rates. “Savings deposit share holds around 30 per cent and remained sticky in interest rate. So, the overall transmission to deposit rates remained low as savings deposit rates remained unresponsive to policy rate changes,” SBI said in a research report. In addition, the decline in the share of current CASA deposits in total deposits, along with the higher transmission to term deposit rates vis-à-vis lending rates have exerted downward pressure on the net interest margins of banks, it said. Some Indian banks have recently adjusted their fixed deposit (FD) interest rates and special schemes. HDFC Bank has ended its special deposit scheme, which previously offered 7.35 per cent interest for 35-month deposits and 7.40 per cent for 55-month deposits. The new rate for these tenures is 7 per cent. The bank has lowered its Marginal Cost of Funds-based Lending Rates (MCLR) by 10 basis points across multiple tenures, effective April 7, 2025. The revised MCLR rates range from 9.10 per cent to 9.35 per cent. Bandhan Bank, Equitas Small Finance Bank and Yes Bank have reduced their FD rates in the last week. State Bank of India (SBI) has withdrawn its Amrit Kalash special deposit scheme, which offered 7.10 per cent interest for a 400-day tenure. The scheme was introduced in April 2023 and ended on March 31.
