SBI Rules Out Deposit Rate Hikes for Three Months as RBI Tightening Boosts Lending Margins — October 8, 2026

State Bank of India (SBI), the nation's largest commercial lender, does not foresee any immediate upward revision in deposit rates over the next two to three months, citing comfortable liquidity conditions across the banking system. Speaking after the Reserve Bank of India (RBI) delivered a 25-basis-point hike in the policy repo rate to 5.50% and adopted a stance of calibrated tightening, SBI Chairman C S Setty indicated that banks have adequate breathing room before passing higher borrowing costs onto depositors.

The asymmetry between asset and liability repricing is poised to expand lenders' net interest margins (NIMs) over the next two to three quarters. Because a significant share of floating-rate bank advances is benchmarked directly to external rates such as the repo rate, lending yields will adjust higher almost immediately, whereas liability costs will lag.

Key Factors Influencing Deposit Rates and Margins

• Abundant Liquidity: Heavy inflows under foreign-currency non-resident (bank), or FCNR(B), deposit swap schemes alongside system liquidity have reduced the pressing need for banks to engage in aggressive rate competition to fund loan growth.
• Asset Repricing Lead: More than two-thirds of floating-rate loans across scheduled commercial banks are tied to external benchmark lending rates (EBLRs), enabling swift transmission of the central bank's rate hike directly into asset yields.
• Sticky Liabilities: Term deposits reprice gradually only as existing contracts mature, shielding lenders from instant increases in their overall cost of funds.

"I believe that for the next two to three months, there may not be any rate action on deposits because we have sufficient liquidity in the system," Setty told reporters in Mumbai. He noted, however, that if credit expansion continues at its current robust pace, certain lenders may eventually need to lift deposit rates to support credit disbursements. Setty also acknowledged the long-term imperative to offer depositors positive real interest rates in an environment marked by persistent inflationary pressures.

Credit Growth Outlook and System Dynamics

Addressing loan expansion, Setty reiterated that SBI expects to sustain a credit growth rate of 14% to 15%, comfortably outpacing nominal gross domestic product (GDP) growth. In SBI's assessment, bank credit expansion generally requires a cushion of 200 to 300 basis points over nominal GDP growth—projected at around 12%—to maintain broader economic momentum.

Setty, who also chairs the Indian Banks' Association (IBA), dismissed concerns that the rapid mobilization of diaspora foreign-currency deposits would prompt lenders into reckless or loose underwriting practices.

While Non-Banking Financial Companies (NBFCs) like Bajaj Finance moved swiftly to adjust fixed deposit rates across various tenures to stay competitive, commercial banks are taking a more measured approach. For Indian equity investors, the widening gap between immediate lending repricing and deferred deposit hikes provides near-term earnings support for public and private sector banks alike, preserving profitability before liquidity normalization begins to lift liability costs later in the fiscal year.

Tags: State Bank of India Reserve Bank of India Indian Banks Association Banking Sector Nifty Bank Net Interest Margin