Scheduled commercial banks (SCBs) saw term deposits grow at a faster pace than savings deposits in Q3 FY25, pushing the share of term deposits in total deposits to 62.1% by February 21, 2025, up from 60.3% a year ago, according to the RBI Bulletin.
The rise was driven by the higher interest rates offered on term deposits, with the share of deposits bearing an interest rate of 7% or above increasing to 70.8% in December 2024, compared to 61.4% in December 2023 and 33.7% in March 2023.
SCBs’ incremental credit-deposit (CD) ratio surged from 80.7% at the end of October 2024 to 88.2% as of February 21, 2025, reflecting robust credit growth relative to deposit mobilisation.
Despite a slowdown in certain sectors during Q3 FY25, credit growth remained strong, with the personal loans segment continuing to drive overall expansion. However, there was a moderation in unsecured personal loans following the increase in risk weights announced in November 2023.
The weighted average domestic term deposit rate (WADTDR) on fresh deposits, including retail and bulk deposits, increased by 253 bps between May 2022 and January 2025. The WADTDR on outstanding deposits rose by 199 bps during the same period.
Transmission to deposit rates was higher for public sector banks (PSBs), while the increase in WALR on fresh rupee loans was more pronounced in PSBs compared to private sector banks (PVBs). However, for outstanding rupee loans, transmission was lower in PSBs.
Repo rate cut triggers EBLR reduction
Following the 25-bps cut in the policy repo rate during the February 2025 policy review, banks reduced their repo-linked external benchmark-based lending rates (EBLRs) by a similar margin. Meanwhile, the 1-year marginal cost of funds-based lending rates (MCLRs) of SCBs rose by 178 bps between May 2022 and January 2025.
The weighted average lending rate (WALR) on fresh rupee loans increased by 181 bps, while the WALR on outstanding rupee loans rose by 115 bps during this period.
SCBs’ lending to the private corporate sector, which accounted for nearly a quarter of total bank credit, moderated in Q3 FY25. However, credit to public sector entities continued to rise, with growth in working capital loans indicating a pick-up in economic activity.
