RBI reports falling bank deposit rates and lower median benchmark lending rate
What happened
Reserve Bank of India data shows scheduled commercial banks cut fresh term deposit rates to 5.67% in August 2026 from 5.85% in July. The 1-year median Marginal Cost of Funds based Lending Rate fell to 8.61% in September from 8.70% in August. However, average lending rates on fresh rupee loans rose to 8.61% in August from 8.52% in July.
Why it matters
Lower deposit rates ease funding costs for banks and drive down internal benchmarks like MCLR. Yet borrowers face mixed impacts, as fresh lending rates increased despite cheaper deposits. Moreover, because internal benchmarks govern less than a third of floating-rate loans, MCLR cuts offer restricted relief across outstanding credit portfolios.
Bigger picture
Indian banking continues migrating toward market-indexed pricing. By end-June 2026, external benchmark-linked loans rose to 68.2% of floating-rate rupee credit from 67.6% in March, while MCLR-linked loans dropped from 30.2% to 29.6%. This shift leaves overall borrowing costs tied more directly to central bank policy moves than internal bank deposit costs.
Watch next
Monitor the next RBI monthly interest rate release to see if fresh lending rates track lower deposit costs, along with upcoming quarterly updates on EBLR credit share.