Banks cut high-cost deposits, low-yielding loans to protect margins

Bankers said that, given the pressure on interest margins, many lenders have reduced dependence on high-cost bulk deposits and scaled down exposure to low-yielding credit to NBFCs

The outstanding deposits of scheduled commercial banks shrank by Rs 40,963 crore to Rs 228.84 trillion in the fortnight ended February 21, 2025, compared to a growth of Rs 2.08 trillion in the previous fortnight (February 7, 2025), as many public sector banks refrained from rolling over and accepting fresh high-cost bulk deposits.

 

Latest data released by the Reserve Bank of India (RBI) showed that credit offtake also remained muted, with the quantum of loans at Rs 26,559 crore in the reporting fortnight, compared to Rs 96,796 crore in the fortnight ended February 7, 2025. The outstanding loans stood at Rs 179.89 trillion as of February 21, 2025.

   

Bankers said that, given the pressure on interest margins, many lenders have reduced dependence on high-cost bulk deposits and scaled down exposure to low-yielding credit to non-banking financial companies (NBFCs).

 

Following the 25 basis points (bps) policy repo rate cut in the February monetary policy review meeting, banks reduced external benchmark-linked lending rates—which are mostly tied to the policy repo rate—while deposit re-pricing happens with a lag.

 

Around 40 per cent of bank loans are linked to an external benchmark, where the impact of the repo rate cut was immediate. As a result, bank margins came under pressure.

 

According to the data, deposits rose by 10.3 per cent year-on-year (Y-o-Y) as of February 21, 2025, compared to 10.6 per cent Y-o-Y growth in the fortnight ended February 7, 2025. Deposit growth stood at 13.1 per cent a year ago.

 

Bank credit clocked 11 per cent Y-o-Y growth in the reporting fortnight, compared to 11.3 per cent Y-o-Y growth in the fortnight ended February 7, 2025. Loan growth stood at 20.5 per cent a year ago.