Any increase in policy rates by the Reserve Bank of India (RBI) could pose challenges for banks as transmission of the previous easing cycle has been uneven, particularly on the deposit side, State Bank of India (SBI) chairman C.S. Setty said.
“Currently, it would be tough because policy transmission, while it has happened on the loan side, did not fully happen for many of us on the deposit side. This means the room for increasing interest rates on deposits would be very difficult unless you are compromising on the margins,” Setty told Moneycontrol.
Data from the RBI shows that during the monetary easing cycle between February 2025 and March 2026, the repo rate was reduced by 125 basis points. Over the same period, the weighted average lending rate on fresh rupee loans declined by 93 basis points, while the weighted average rate on fresh term deposits fell by only 55 basis points.
The transmission has been even weaker for outstanding deposits, where rates have declined by just 47 basis points, according to the RBI’s May 2026 bulletin.
Setty said any policy action by the central bank would ultimately depend on evolving macroeconomic conditions. The SBI’s economic research department, in a report released on May 31, projected that the RBI is likely to maintain a status quo on policy rates amid a volatile global environment.
“In the current unprecedented situation, the RBI must take measures to defend the rupee, especially when domestic macroeconomic fundamentals remain strong,” it said.
Speaking at the Citi India Conference 2026, Setty said lenders continue to closely monitor private sector capital expenditure plans.
“Despite the conflict, we have not seen everyone pulling back on capex. We will have to see, maybe three, four or six months later, how the capex plans come into force,” he said.
On the proposed initial public offering of SBI Funds Management, Setty said the asset management company is targeting a listing during the current calendar year.
“We hope to do it sometime during this year,” he said, adding that the draft prospectus has already been filed and it is awaiting regulatory approvals.