Fresh Bank Lending Rates Fall 10 Bps to 8.51% in September as Foreign Lenders Lead Cuts
Fresh rupee borrowing costs in India eased in September 2026, as scheduled commercial banks (SCBs) lowered rates amid comfortable system liquidity, according to data released by the Reserve Bank of India (RBI) in its monthly report titled Lending and Deposit Rates of Scheduled Commercial Banks – October 2026.
The Weighted Average Lending Rate (WALR) on fresh rupee loans sanctioned by commercial banks declined by 10 basis points (bps) to 8.51% in September, compared to 8.61% in August. Foreign banks operating in India led the downward revision, trimming their fresh lending rates by 22 basis points during the period.
Lending Rates: Fresh Loans Drop, Legacy Loans Hold Firm
While borrowers negotiating new credit lines saw rates decline, existing borrowers saw no immediate relief. The WALR on outstanding rupee loans remained unchanged at 8.96% in September. Across sectors, the RBI highlighted that lending rates on both fresh and outstanding loans showed mixed movements.
At the benchmark level, the one-year median Marginal Cost of Funds-based Lending Rate (MCLR) of scheduled commercial banks dropped by 6 basis points, falling to 8.55% in October from 8.61% in September.
Key Lending and Deposit Metrics:
- Fresh Loan WALR: Fell 10 basis points from 8.61% in August to 8.51% in September.
- Outstanding Loan WALR: Remained flat at 8.96% in September.
- 1-Year Median MCLR: Eased from 8.61% in September to 8.55% in October.
- Fresh Deposit Rate (WADTDR): Slipped 6 basis points from 5.67% to 5.61% in September, touching a 10-month low.
- Outstanding Deposit Rate: Decreased marginally by 1 basis point from 6.56% to 6.55%.
Deposit Rates Slide to 10-Month Low
Alongside loan pricing, deposit returns also cooled. The Weighted Average Domestic Term Deposit Rate (WADTDR) on fresh rupee deposits fell by 6 basis points to 5.61% in September, down from 5.67% in August. This marked the lowest level in 10 months as lenders faced reduced pressure to compete aggressively for term deposits.
The rate on outstanding domestic term deposits contracted by a single basis point, moving from 6.56% to 6.55%.
The moderation in deposit costs was supported by surplus liquidity in the banking system, which reduced the immediate need for banks to mobilize high-cost bulk deposits.
Market Implications for Indian Borrowers and Investors
For Indian corporations and retail borrowers, the decline in fresh WALR and the softening MCLR point to competitive loan pricing across banking counters, particularly from foreign and private lenders actively deploying credit. However, the stickiness of outstanding loan rates indicates that the transmission to existing legacy retail portfolios, such as older MCLR-linked home and vehicle loans, remains gradual.
For fixed-income savers, the slip in fresh term deposit rates to 5.61% reflects that the peak of bank deposit pricing may be moderating, compelling retail depositors to lock in longer maturities before further downward adjustments occur.
