A month after RBI’s rate hike, banks start raising deposit rates as liquidity shrinks, Bank of India the latest to move

A month after the Reserve Bank of India's rate hike, several lenders have begun raising deposit rates as system liquidity tightens, with Bank of India the latest institution to move. The transmission mechanism runs through funding costs: as liquidity shrinks, banks must compete harder for deposits to replace tighter wholesale and interbank funding, which compresses net interest margins unless loan repricing keeps pace. Indian bank equities, particularly those with high deposit-funding dependence and weaker margin buffers, are most exposed to this squeeze, while rate-sensitive segments such as housing finance and auto lending face higher borrowing costs that could slow credit demand. Traders should watch the next RBI liquidity operations and the weekly data on scheduled commercial bank deposit growth and credit offtake, which will show whether the deposit-rate repricing is sufficient to restore funding stability or whether tightening pressure persists.

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