The Reserve Bank of India (RBI) has infused over ₹5 lakh crore into the banking system since mid-January through bond purchases, forex swaps, and early-April maturity repos. Aiming to maintain surplus liquidity and ensure the transmission of its rate cut benefits to borrowers, the central bank is set to inject an additional ₹50,000 crore via bond repurchases on Tuesday.
While the RBI’s 25-basis-point repo rate cut in February provided some relief to home loan borrowers, corporate borrowers have not seen a reduction in lending costs. This is primarily because corporate loan rates are linked to the one-year Marginal Cost of Funds-Based Lending Rate (MCLR), which remains high. The State Bank of India (SBI), the nation’s largest lender, continues to maintain its one-year MCLR at 9%, the highest level since RBI began its rate hike cycle.
Despite the central bank’s record liquidity infusion, money market reactions have been subdued, influenced by global yield increases and year-end funding demand. Banks are also hesitant to lower term deposit rates due to credit growth (9.5% as of February-end) outpacing deposit growth (8.8%).
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So far, major banks have refrained from reducing deposit rates, with only a few small finance banks adjusting their fixed deposit (FD) rates, some offering over 8% interest. These adjustments come as smaller lenders reassess their growth strategies amid stress in the financial sector.
Additionally, even as RBI injects liquidity, it continues to withdraw rupees by selling dollars from its forex reserves. This strategy has helped stabilize the financial system, but short-term interest rates remain elevated due to liquidity deficits and economic uncertainties.
With the financial year-end pushing banks to meet lending targets, experts anticipate a decline in the cost of funds in the first quarter of FY26.
