With banking system liquidity shifting to surplus, lenders have begun slashing interest rates on fixed deposits. HDFC Bank and Yes Bank have reduced rates on select fixed deposits (FDs) of below Rs 3 crore, effective April 1.
HDFC Bank, the largest private lender, has cut rates by 35 basis points (bps) for deposits maturing in 2 years and 11 months, and by 40 bps for those maturing in 4 years and 7 months. Yes Bank has also lowered FD rates by 25 bps on select tenures.
More banks are expected to follow suit in the coming days as surplus liquidity will ease the pressure to raise funds.
“It’s the start of a trend, which will be followed by other banks. Banks draw comfort from the fact that liquidity conditions have improved and credit remains relatively low in the first quarter,” said an executive director of a public sector bank.
Banks were hesitant to cut deposit rates after the Reserve Bank of India (RBI) cut repo rate by 25 basis points in February because of tight liquidity conditions, he added. Liquidity has turned positive with the beginning of the new financial year after witnessing record deficit in the first quarter of 2025 calendar year. Liquidity surplus stood at Rs 1.42 lakh crore on April 1, according to RBI data.
HDFC Bank is now offering 7% interest (7.35% earlier) on fixed deposits maturing in 2 years and 11 months while rates on FDs maturing in 4 years and 7 months have been reduced from 7.40% to 7.00%. Yes Bank is now offering 7.75% interest for the tenure of 12 months to 24 months, compared with 8% earlier.
“Now that the tough liquidity conditions are over, it is possible that the situation is positive for other banks to lower rates on fixed deposits,” said Madan Sabnavis, chief economist, Bank of Baroda. “Based on past trends, rates are likely to come down first for deposits maturing in one-two years.”
Banks will also be quick to cut rates on FDs as it will help them protect net interest margins. “The RBI is expected to cut the repo rate by 75 bps in the current financial year, which will put pressure on banks’ margins. Lowering rates on FDs is one of the ways to boost profit margins,” said the head of treasury of a private bank.
Liquidity condition has improved after the RBI implemented a series of measures, including forex swaps, open market operations and variable rate repo auctions, to inject both durable and short-term liquidity into the system.