State Bank of India Chairman C S Setty has signalled that deposit rates are unlikely to rise over the next three months, pointing to sufficient liquidity in the banking system as the main reason. His remarks suggest that lenders may have some breathing room after a period in which funding costs came under pressure from tighter deposit competition and a sustained need to attract retail savings.
Setty's comments are significant because deposit pricing remains one of the most sensitive levers in Indian banking. When banks raise deposit rates, their cost of funds increases, often squeezing net interest margins, or NIMs, unless lending yields rise at a similar pace. By indicating that a fresh round of deposit rate hikes is not imminent, the SBI chief is effectively suggesting that the current liquidity backdrop is easing the immediate need for banks to bid aggressively for deposits.
Liquidity Eases Funding Pressure
Setty linked the outlook to adequate system liquidity, which has helped reduce the urgency for banks to compete sharply on deposit pricing. In practical terms, this means lenders may be able to rely more on existing balances and less on costly incremental deposits in the near term. For large banks such as SBI, which operate at scale and have broad deposit franchises, a stable funding environment can translate into better control over margins and more predictable loan pricing.
The comments also come at a time when banks have been balancing two competing priorities: preserving profitability and maintaining deposit growth. Deposit mobilisation has been a recurring challenge across the sector, especially as credit demand has remained resilient and households have had more options for allocating savings. Setty's view implies that the immediate pressure to lift rates may have moderated, at least for the next quarter.
Margins And Real Returns
Setty said recent RBI action would help support NIMs, underscoring the central bank's role in shaping the operating environment for lenders. While he did not elaborate in detail, the remark points to a broader expectation that monetary and liquidity conditions are becoming more favourable for banks' earnings profiles. For lenders, NIMs remain a critical measure of core profitability, and even modest changes in funding costs can have a material impact on earnings.
At the same time, Setty stressed that banks must ensure positive real interest rates for depositors in an inflationary environment. That point is important because savers are increasingly sensitive to whether returns on deposits outpace inflation. If deposit rates lag price growth for too long, households may shift funds toward higher-yielding alternatives, potentially complicating banks' liability management over time.
His remarks reflect a familiar tension in Indian banking: lenders want to protect margins, but they also need to preserve the attractiveness of bank deposits as a savings instrument. Positive real returns are especially relevant in a period when inflation can erode the purchasing power of fixed-income savings. Setty's comments suggest that banks will need to remain mindful of depositor sentiment even if immediate rate hikes are off the table.
Credit Growth Outlook
Looking ahead, Setty said credit growth is expected to sustain at 14% to 15% over time. That forecast points to continued demand for loans across the economy, even as banks manage funding costs carefully. A credit growth trajectory in that range would indicate that lending activity remains healthy, supporting broader economic momentum and reinforcing the importance of stable deposit mobilisation.
For the banking sector, the combination of steady credit growth and easing deposit-rate pressure could be constructive. If loan demand stays firm while funding costs remain contained, lenders may be able to defend or improve profitability. However, the balance is delicate: banks must still ensure that depositors receive adequate compensation, especially if inflation remains sticky or rises again.
Setty's remarks therefore capture the current mood in Indian banking: cautious optimism on margins, a watchful eye on depositor behaviour, and confidence that credit demand will remain robust. The next three months, he suggested, may offer banks a window of relative stability on the liability side, even as they continue to navigate a competitive lending environment.