Bank Deposit Slowdown: As borrowers await June 6 RBI rate decision, lenders stare at a rare challenge—Muted credit growth a silver lining!

RBI Rate Decision, MPC June 6 Review, Bank Deposit Growth: Deposit growth in the country’s commercial banks slowed to 10.6 per cent in the financial year ended March 31, 2025, marking a decline of 240 basis points (bps) compared with the corresponding period a year ago, Reserve Bank of India (RBI) data shows. Many analysts say that the likelihood of more rate cuts by the central bank’s Monetary Policy Committee (MPC) might worsen the deposit and credit situation at the lenders, as customers move away from the interest-yielding financial products such as savings accounts and term deposits.

The development comes as the country awaits the outcome of bi-monthly deliberations due on June 6, where the RBI Governor-led rate-deciding panel is widely expected to announce a cut in the benchmark lending rate—the repo rate. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.

Some sections of Dalal Street have also anticipated a reduction of 50 basis points (bps) in the coming MPC review.

Analysts say that muted credit growth is saving the banks from a cash crunch for now, but that may change once it picks up going forward.

In May, credit growth at the country’s scheduled commercial banks was estimated at 9.8 per cent in stark contrast with 19.5 per cent a year ago, highlighting a slowdown in lending activities across the sector, according to a report by State Bank of India (SBI), the country’s largest lender by assets.

An expected pickup in loan demand may lead to tighter liquidity conditions, despite the RBI’s measures to keep the system aflush with cash.

Some analysts say that the data points to retail investors moving away from fixed return instruments—like term deposits—to riskier assets such as equities and related products such as mutual funds, regardless of the associated risk and grim market conditions.

For now, Dalal Street benchmarks appear to be rangebound amid growing concerns about a persistent pause in foreign fund inflows. In June so far,

Meanwhile, blue-chip index Nifty50 stands more than 1,700 points away from an all-time high reached in late September. It has gyrated in a range of more than 3,350 points, between 25,116.3 and 21,743.7, in intraday trade on a year-to-date basis.

FD and Small Savings Scheme Rates

Most commercial lenders have brought their interest rates below the 7.0 per cent mark, whereas small savings schemes like 3-Year and 5-Year Post Office Time Deposit, Senior Citizen Savings Scheme (SCSS), Monthly Income Scheme (MIS) and Sukanya Samriddhi Account continue to offer higher interest rates.

Post Office schemes paying more than 7.0% return