India's Deposit Growth Unaffected by Lower Real Interest Rates: SBI Report

India's banking sector has demonstrated resilience in deposit mobilization, with growth continuing to improve even as real interest rates have declined, according to a recent report by SBI Ecowrap.

The report highlights that the weighted average domestic term deposit rate saw a reduction following the central bank's policy repo rate cuts. Concurrently, the real interest rate in India fell from 2.52% in January 2026 to 0.87% in June 2026. Despite this decrease in returns, deposit growth saw a notable increase, rising from 12.3% in January to 13.3% by June 2026. This trend, excluding FCNR(B) deposits, indicates that deposit mobilization remains robust even with lower real returns.

"There is no empirical evidence to suggest that in India real interest rates and deposits growth are not correlated," the SBI Ecowrap report stated, emphasizing that deposits are primarily influenced by the existing rate structure. The observed improvement in deposit growth suggests that mobilization efforts have been effective, maintaining resilience despite the less attractive real returns.

Beyond deposit trends, the report also commended the Reserve Bank of India's (RBI) foreign exchange management. Inflows from FCNR(B) deposits, amounting to USD 36.7 billion by July 31, enabled the RBI to bolster its foreign exchange reserves and reduce outstanding short-term forward positions. Furthermore, an analysis of the RBI's policy statement revealed a predominantly dovish communication profile, with the Dovish Communication Index rising significantly.

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