Private banks cut both FD & Savings Bank Rates after the repo rate drops

India’s largest private-sector lender, HDFC Bank, has recently reduced its savings account interest rate by 25 basis points, bringing it down to 2.75%, to manage costs and protect margins following the RBI’s repo rate cut. For account holders maintaining balances above ₹50 lakh, the interest now stands at 3.25%, down from 3.5%. This move significantly indicates a shifting landscape in India’s retail lending space. HDFC Bank maintained a relatively stable savings rate for over a decade, but market dynamics are changing. With customers increasingly prioritising fixed deposits for better returns, banks are recalibrating their strategies, pushing for cost-effective funding mechanisms.

At Loan Bazaar, we understand how such shifts can impact everyday financial planning. While the interest earned on savings accounts is shrinking, the move nudges individuals and businesses to explore higher-yield alternatives like fixed deposits, investment-linked savings, or strategic loan products that offer better value and liquidity management.

Strategic moves by Banks to manage margins post RBI’s repo rate cut

The decision by HDFC Bank to cut savings account interest rates is a calculated response to the Reserve Bank of India’s 25 basis point repo rate reduction. Whenever the RBI adjusts the repo rate, it directly influences the cost of lending and borrowing across the economy. Banks, in turn, revise their interest structures to maintain healthy profit margins.

For a bank like HDFC, which holds over ₹6 lakh crore in savings account balances, a 25 bps reduction might seem minor, but it’s projected to save ₹1,500 crore annually in interest outflow. This is a strategic move in a competitive financial environment that helps offset reduced income from lending operations and rising credit costs.

Shift in depositor behaviour favouring fixed deposits over savings.

Over the years, customers have viewed savings accounts as convenience tools ideal for transactions, bill payments, and short-term liquidity rather than actual savings instruments. With interest rates hovering near the 2.75% to 3.25% range, these accounts offer minimal returns compared to fixed deposits or market-linked instruments.

This has led to a noticeable behavioral shift, where surplus funds are increasingly parked in fixed deposits, which offer higher interest, better returns, and flexible tenures. As a result, banks are experiencing a decline in CASA (Current and Savings Account) deposits, which is historically served as a cheap source of capital.

From a consumer standpoint, this shift makes sense; it’s about value maximization. However, it necessitates a rethink in banks’ deposit mobilization strategy, leading to tighter control over interest payouts and the development of new, customer-focused investment products.

Banks Turning Cautious on Home Loans

Alongside changes in bank deposit strategies, another notable trend is that banks are becoming cautious about home loan lending as well as other retail lending segments. While private banks are gradually tightening their underwriting norms and slowing down approvals, some multinational banks have exited the home loan segment. This reflects a wider reassessment of long-term retail lending as financial institutions navigate rising operational risks and interest rate uncertainties.

Fixed-income instruments are becoming less attractive amid falling interest rates, and asset quality pressures loom in the housing sector. Banks appear to be adopting a more conservative stance. This trend could potentially impact new homebuyers, especially those seeking competitive rates and faster approvals.

Conclusion:

However, these developments signal a significant recalibration in how Indian banks manage both sides of their balance sheets. From re-evaluating savings and fixed deposit offerings to reassessing their lending appetite, particularly in the home loan segment, the financial sector is adapting to a new phase of economic and monetary shifts.

This changing landscape makes staying informed more important for consumers. With savings rates falling and fixed deposit rates gradually declining, now may be a good time to lock in higher FD returns, especially for senior citizens who rely on a steady interest income. A timely switch matters because, once locked, fixed deposit rates remain unchanged even if the market shifts. India’s trade markets will likely be impacted by growing global tensions along with the US regarding tariff policymakers, further complicating the country’s economic outlook.

At Loan Bazaar, we see this shift as a change and a window of opportunity.

Whether you’re planning to buy a new home or your dream car or exploring options in the broader retail loan market, now is the perfect time to take the next step confidently. GDP growth forecasts have been trimmed from 6.7% to 6.5%, reflecting policymakers cautious balancing act to contain inflation without tipping the economy into a slowdown.