RBI Rate Cut Ripple: How It Hits Your Savings and Loans

India's top banks have begun lowering deposit interest rates after the Reserve Bank of India's recent monetary policy action. The RBI reduced its benchmark repo rate by 25 basis points in April, the second such reduction this year following a similar cut in February. 

More importantly, the RBI changed its policy stance to ‘accommodative’ signaling a longer low-interest rate period. This step is intended to stimulate economic activity but has provoked a spate of rate reductions by banks to safeguard their margins.

Borrowers Cheer, But Savers Feel the Pinch

Declining interest rates are a boon for borrowers, particularly those who have loans pegged to external benchmarks, as EMIs decrease. But depositors are witnessing dwindling returns. 

Banks were in a competitive mood of offering higher deposit rates to lure savers and improve their loan-deposit ratio over the last few months. Now, with liquidity comfortable and the RBI cutting rates, banks are lowering deposit rates in sync with margin pressures and decelerating deposit growth.

ALSO READ: How RBI's Rate Cut Will Slash Your Loan EMIs: SBI, HDFC, PNB and More Follow Suit

HDFC, ICICI, Axis, and Federal Bank Cut Savings Rates

India's biggest private bank, HDFC Bank, has reduced its savings account rate of interest from 3.0% to 2.75% for balances up to ₹50 lakh, and from 3.50% to 3.25% for larger balances. 

ICICI Bank, Axis Bank, and Federal Bank have also cut their savings deposit rates by as much as 25 basis points. Federal Bank now pays 2.75% for balances up to ₹50 lakh and 5.25% for balances up to ₹50 crore.

Fixed Deposit Rates Also Decline

Banks have also started cutting fixed deposit (FD) rates. HDFC Bank cut FD rates on deposits up to ₹3 crore for certain tenors, with effect from April 19. Bank of India also lowered interest rates on short- and medium-term FDs from April 15. 

Federal Bank has cut its FD rates for 46 to 90 days from 5.50% to 4.50%, and for 91 to 180 days, the rate is now 5%, from 5.50%. For 181 to 270 days, the rate of FD interest has been updated to 6%, unifying earlier slabs. 

The rate of one-year FD has come down from 7% to 6.85%. This is an indication of the overall trend of declining yields for savers during the ongoing interest rate cycle.