Rates on new bank loans rose from 8.52% in July to 8.61% in August. Rates on new fixed deposits fell from 5.85% to 5.67% over the same period. Since the RBI’s October hike, most banks have still not raised deposit rates.
Banks have an explanation. They are flush with money after a surge in foreign currency deposits, and they only compete for deposits when they need funds. As a matter of business, that makes sense.
Why it matters
But the gap falls hardest on people who rely on interest income, especially retirees, at a time when retail inflation is running above 5.5%. A senior citizen earning under 6% on a new FD is barely keeping pace with prices once tax is counted.
Loan rates move quickly because most floating loans are linked to the repo rate by rule. Deposit rates have no such link. The RBI does not need to set deposit rates, but it can ask banks to publish, at every policy change, how their loan and deposit rates have moved since the last one. Making the gap visible would push banks to compete for savers.
The counterargument is that forcing deposit rates up when banks don’t need money would raise their costs and push loan rates higher still. That is a reason for disclosure rather than mandates, not a reason to do nothing.