Public sector banks slashed key rates more than private ones: RBI Monthly Bulletin

Following the central bank's decision to cut the key repo rate by 100 basis points since February 2025, public sector banks have reduced their lending and deposit rates more than private sector banks, as per data released by the Reserve Bank of India on Wednesday.Between February-May 2025, weighted average lending rates on fresh loans for public sector banks reduced by 31 bps while private sector counterparts reduced it by 20 bps, followed by 49 bps by foreign banks. Meanwhile, for outstanding loans, public sector banks reduced the lending rate by 17 bps, along with private players easing rates by 15 bps. Foreign banks, however, slashed the weighted average lending rate on outstanding loans by 52 bps. The central bank's report also marked that the savings deposit rates of some public banks are prevailing at a historical low, since their de-regulation in 2011. The weighted average domestic term deposit rates on fresh and outstanding deposits moderated by 51 bps and 2 bps, respectively, during the same period.The six-member monetary policy committee has cut the policy repo rate by 50 bps between February and May. In June, the panel announced a further rate cut of 50 bps. One bp equals 0.01 per cent."In response to the 100-bps reduction in the policy repo rate since February 2025, banks have adjusted their repo-linked external benchmark-based lending rates downward by 100 bps and marginal cost of funds-based lending rate by 10 bps," RBI bulletin stated.Consequently, the weighted average lending rates on fresh and outstanding rupee loans of scheduled commercial banks declined by 26 bps (domestic banks - 24 bps) and 18 bps (domestic banks - 16 bps), respectively.However, the rates on small savings schemes were kept unchanged by the Government of India during Q2 2025-26.Another key point is the central bank's adjustment in Cash Reserve Ratio (CRR) for banks that led to significant adjustment in reserve money. The pace of expansion in money supply is now marginally higher as compared to last month. Credit growth of scheduled commercial banks accelerated to 10.4 per cent (y-o-y) as on June 27, 2025 (9.9 per cent (y-o-y) a month ago), mainly due to strong momentum effect.Average bank credit growth continued to moderate across key sectors of the economy in May 2025.Bank credit to NBFCs contracted in May 2025; however, NBFCs raised significant amount of debt from the capital markets via private placements, as stated in an article on state of the economy in RBI's July Bulletin."Personal loans, the main driver of banks’ credit growth, also recorded a sharp deceleration, largely due to a decline in the growth of other personal loans, vehicle loans and credit card outstanding."Housing loans have majorly contributed to the growth of personal loans in the market. 'While overall credit to the industrial sector recorded a subdued growth due to a decline in credit growth to infrastructure, credit to the MSME sector continued to remain buoyant,' the report stated.The central bank, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India.