State Bank of India Chairman C S Setty has signalled that Indian banks are unlikely to raise deposit rates for at least the next three months, pointing to comfortable liquidity conditions across the system and a policy backdrop that may ease pressure on funding costs. His comments come at a time when lenders are balancing the need to attract deposits against the risk of compressing margins in a still-competitive credit market.
Liquidity Eases Pressure
Setty's assessment suggests that the recent strain on deposit mobilisation may be moderating, at least for now. In a banking system where loan growth has often outpaced deposit accretion, lenders have been forced to offer higher rates to retain and attract savers. His view that no immediate deposit rate hikes are likely indicates that banks may have some breathing room as liquidity remains sufficient to meet near-term funding needs.
That matters because deposit pricing is one of the most sensitive levers in banking. When banks raise deposit rates, the cost of funds rises quickly, and that can squeeze net interest margins, or NIMs, if lending rates do not adjust at the same pace. Setty's remarks imply that the current environment may allow banks to hold deposit rates steady while preserving profitability, especially if credit demand remains orderly rather than overheated.
RBI Support For Margins
Setty also indicated that action by the Reserve Bank of India is expected to help NIMs. While he did not spell out a specific policy measure in the remarks cited, the broader implication is that the central bank's stance is likely to be supportive for banks' earnings profile. For lenders, margin stability is critical because it determines how much profit they can generate from the spread between lending and deposit rates.
The RBI has been navigating a delicate balance between inflation management, growth support and financial stability. For banks, any policy environment that reduces funding stress or improves transmission dynamics can be constructive. Setty's comments suggest that SBI, the country's largest lender, sees the current policy and liquidity setting as more favourable than the recent period of aggressive deposit competition.
Credit Growth Outlook
On the demand side, Setty said credit growth is expected to sustain at 14% to 15% over time. That is a significant signal for the sector, because it points to continued lending momentum without suggesting an abrupt overheating of the economy. Sustained credit expansion at that pace would support revenue growth for banks, provided asset quality remains stable and funding costs do not rise sharply.
The outlook also reflects the broader structural story in Indian banking: loan demand has remained resilient across retail, corporate and small business segments, even as banks have had to work harder to gather deposits. If deposit growth stabilises and liquidity stays adequate, lenders may be able to support credit expansion without resorting to aggressive rate competition.
Setty's comments also underscore a key policy and commercial concern: banks must ensure that depositors receive positive real interest rates in an inflationary environment. In practical terms, that means deposit rates should, over time, remain above inflation so savers do not lose purchasing power. The remark is notable because it acknowledges the depositor's perspective even as banks seek to protect margins.
For the sector, the message is twofold. First, the immediate pressure to lift deposit rates may be easing. Second, banks will still need to remain disciplined, because inflation, liquidity shifts or stronger-than-expected credit demand could quickly alter the funding landscape. For now, however, Setty's comments point to a more stable phase for bank liability pricing and a potentially healthier backdrop for earnings.
The remarks are likely to be watched closely by market participants for clues on how India's largest lender sees the balance between growth, deposits and profitability heading into the next quarter. In a sector where funding costs can change rapidly, even a three-month pause in deposit rate hikes can have meaningful implications for margins, competition and the pace of lending.