Indian banks raised fresh term deposit rates in June 2025, with private-sector lenders leading the increase as institutions competed more aggressively for customer funds.

According to data on scheduled commercial banks, the average domestic term deposit rate rose to 5.99%. Private-sector banks drove the upward movement, raising their average fresh term-deposit rate by 27 basis points to 6.21%, up from 5.94% in May.

Public sector banks also increased their rates, though by a smaller margin of 7 basis points. Despite the sharper increases by private lenders, public sector banks maintained a higher average deposit rate than their private-sector counterparts.

The trend reflects ongoing pressure on Indian banks to attract and retain depositors. Banks have been facing a sustained gap between credit growth and deposit growth, prompting them to offer more competitive rates on term deposits. This dynamic has been a recurring theme in India's banking sector, as lenders seek to fund robust loan demand while deposit growth has lagged behind.

The Reserve Bank of India (RBI), the country's central bank, has previously noted that the credit-deposit ratio at several banks has risen, indicating that loan expansion has outpaced deposit accumulation. A higher credit-deposit ratio can signal tighter liquidity conditions and increased competition among banks for funding. RBI Governor Shaktikanta Das has publicly urged banks to mobilize retail deposits more aggressively, highlighting the sustainability risks of relying on alternative funding sources to support credit growth.

Term deposits, also known as fixed deposits, are a key savings instrument in India, widely used by retail customers and institutions alike. They face growing competition for household savings from government-backed small savings schemes such as the Public Provident Fund and Senior Citizen Savings Scheme, as well as from mutual funds and equities, which have drawn record inflows in recent years. Changes in term deposit rates can influence consumer decisions on savings allocation and are closely monitored as an indicator of broader interest rate trends in the banking system. Rising deposit costs also have implications for banks' net interest margins, particularly if lending rates do not adjust at the same pace.

Source: Economic Times Markets