Lower real interest rates have not hurt deposit growth in India: SBI Research

The report said the weighted average domestic term deposit rate on fresh deposits declined by 63 basis points, while the rate on outstanding deposits softened by 51 basis points following the cumulative 125 basis points reduction in the policy repo rate between February and June 2026.

During the same period, the real interest rate fell from 2.52 per cent in January 2026 to 0.87 per cent in June 2026.

Despite this, deposit growth improved from 12.3 per cent in January 2026 to 13.3 per cent in June 2026. Excluding FCNR(B) deposits, deposit growth stood at 13.0 per cent in June, indicating that deposit mobilisation remained resilient even with lower real returns, the report said.

"There is no empirical evidence to suggest that in India real interest rates and deposits growth are not correlated," the report said.

It added that deposits are influenced more by the existing rate structure, and that the improvement in deposit growth suggests mobilisation remained resilient despite lower real returns.

The report also highlighted the RBI's foreign exchange management, noting that FCNR(B) inflows of USD 36.7 billion till July 31 enabled the central bank to recoup around USD 20 billion in foreign exchange reserves (foreign currency assets) and vacate USD 13 billion of outstanding short-term forward positions till June-end.

According to the report, the RBI's policy statement also exhibited a predominantly dovish communication profile based on its Natural Language Processing (NLP)-based analysis. The Dovish Communication Index increased to 50.9 per cent from 40.83 per cent in the previous policy, while the Uncertainty Communication Index declined to 25.4 per cent from 34.8 per cent.

The report further said the RBI's proposed measures to standardise loan pricing across regulated entities are expected to enhance transparency, strengthen monetary policy transmission and improve consumer protection.

It also noted that the resumption of on-tap licensing for Urban Cooperative Banks could support financial inclusion, while the review of concentration risk guidelines for Rural Cooperative Banks addresses structural challenges in the sector.

Finally, the report said banking sector health indicators remained strong over the past year, with improvements in capital adequacy and asset quality. (ANI)