A growing imbalance between credit demand and deposit growth is putting banks under pressure, with early signs indicating that deposit rates could move upward in the coming period.
According to recent central bank data, credit growth continues to outpace deposit mobilisation, leaving banks with limited options to bridge the gap. It’s rate transmission has reached nearly 100 basis points compared to a 125 basis point cut in the repo rate, showing that most of the rate reductions have already been passed on to depositors. However, attracting fresh deposits remains a challenge.
Analysts suggest that it’s rates may have already bottomed out. Jignesh Shial, director and lead, BFSI, Ambit Capital, said, “Given persistent liquidity constraints and heightened macro uncertainty, the scope for further moderation in term it’s rates appears exhausted.” He added, “Continued inflationary pressure driven by the Middle East conflict could result in a repo rate increase, which would in turn push term it’s rates higher.”
The issue is not limited to the current rate cycle. Over the years, it’s growth has consistently lagged behind credit expansion. Between 2023-24 and December 2025, it’s grew by 9%, while credit expanded by 11.3%. The gap was even wider between 2021-22 and 2023-24, with it’s growing at 11.9% compared to credit growth of 17.6%. In contrast, earlier periods such as 2017-18 to 2021-22 and 2009-10 to 2013-14 saw relatively balanced or stronger deposit growth.
Experts believe competition among banks for deposits will keep rates elevated. Sanjay Agarwal, senior director at CareEdge Ratings, said, “While transmission through MCLR (marginal cost of funds-based lending rate) and EBLR (external benchmark lending rate) will influence deposit pricing, banks are expected to continue offering relatively competitive term deposit rates to attract funds.” He further noted, “This stickiness in deposit rates reflects the continued competition for deposits amid credit growth outpacing mobilisation – keeping funding costs elevated and exerting pressure on margins.”
With liquidity constraints and rising competition, banks may have to maintain or increase it’s rates to secure funds, even as it impacts profitability.
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