Fresh rupee term deposit rates experienced a slight decrease in July, with the weighted average domestic term deposit rate (WADTDR) declining to 5.90% from 5.99% in June, according to Reserve Bank of India (RBI) data. However, outstanding rupee deposit rates remained stable during the same period, staying unchanged at 6.58%. This differential between fresh and outstanding rates indicates market dynamics affecting new versus existing deposits across scheduled commercial banks (SCBs).
Lending rates on outstanding rupee loans showed minimal change, with the weighted average lending rate (WALR) on outstanding rupee loans of SCBs standing at 8.97% in July 2026, little changed from 8.96% in June 2026. The WALR on fresh rupee loans of SCBs declined marginally to 8.52% in July 2026 from 8.53% in June 2026, as reported by RBI data. This stability in lending rates suggests banks maintained consistent pricing strategies across different loan categories, though the central bank notes mixed trends across different sectors.
The one-year average marginal cost of funds-based lending rate (MCLR) increased to 8.70% in August 2026 from 8.60% in July 2026, with the rise primarily driven by foreign banks' higher average MCLR. According to RBI data, the average MCLR for foreign banks rose to 7.33% in August 2026 from 7.20% in July 2026. The average one-year MCLR for public sector and private sector banks remained unchanged at 8.80% and 9.35% respectively across SCBs.
Public sector banks have gained significant lending headroom following liquidity requirement relaxation, with estimated ₹2.1 lakh crore of additional lending capacity available for credit growth. As per Bernstein analysis, the excess investment buffer could support around 1.7% incremental loan growth on the PSB loan book of ₹127.9 lakh crore. PSBs held a total high-quality liquid assets (HQLA) of ₹33.9 lakh crore in the June quarter, against an estimated optimum requirement of ₹32.2 lakh crore at a 120% LCR benchmark. This translates into ₹1.6 lakh crore of excess HQLA and approximately ₹2.1 lakh crore of excess investments after adjusting for investment book share.
The relaxation of liquidity coverage requirements has enabled major state-owned lenders to improve their liquidity positions significantly. State Bank of India's LCR rose to 126.05% in the June quarter from 124.32% in March, while Union Bank of India's LCR increased to 121% from 114%. Bank of Baroda reported an LCR of 126.94% for the June quarter. As Pranav Gundlapalle, head of India Financials at Bernstein, noted, "Excess liquidity within the PSBs increased during the quarter, potentially providing additional capacity to support credit growth." The tweaked liquidity framework allows banks to free up more funds tied up in government bonds for onward lending in higher-margin products, supporting sustained credit growth even as deposit mobilisation remains relatively weak.
