State Bank of India chairman C.S. Setty said any increase in policy rates by the Reserve Bank of India could create challenges for banks because the earlier easing cycle has not been transmitted evenly across the system, especially on the deposit side. He noted that while loan rates have adjusted downward, deposit rates have been slower to move, leaving lenders with limited room to raise deposit rates without hurting margins.
According to RBI data, between February 2025 and March 2026, the repo rate was cut by 125 basis points. During the same period, the weighted average lending rate on fresh rupee loans fell by 93 basis points, while the weighted average rate on fresh term deposits declined by only 55 basis points. For outstanding deposits, the reduction was even smaller at 47 basis points, underscoring the uneven nature of monetary transmission across banks and borrowers.
Setty said the RBI’s next move would depend on changing macroeconomic conditions. He pointed to the SBI economic research department’s May 31 report, which expects the central bank to keep policy rates unchanged amid a volatile global environment. The report said the RBI may need to take steps to support the rupee, even as domestic macroeconomic fundamentals remain strong.
Speaking at the Citi India Conference 2026, Setty also said banks are closely tracking private sector capital expenditure plans. He said companies have not broadly withdrawn investment plans despite ongoing conflict and uncertainty, but the real impact on capex will become clearer over the next three to six months as those plans move into execution.
On SBI Funds Management’s proposed initial public offering, Setty said the listing is targeted for sometime during the current calendar year. He said the draft prospectus has already been filed and the process is now awaiting regulatory approvals. The proposed IPO is part of SBI’s broader capital market strategy and would mark a significant event for the bank’s asset management business if cleared and launched as planned.
The comments highlight the delicate balance facing Indian banks and policymakers as the RBI weighs inflation, currency stability, liquidity conditions and growth support. For lenders, the main concern is that any upward shift in rates could come at a time when deposit repricing has not fully caught up with previous cuts, making funding costs harder to manage.
