Indian Bank Lending Rates Rise as Deposit Rates Fall

Indian banks experienced a divergence in interest rates during August 2026, characterized by falling deposit rates and rising lending costs. The weighted average rate on fresh rupee term deposits dropped 18 basis points to 5.67%, while fresh rupee lending rates increased by nine basis points to 8.61%.

Both public and private sector banks reduced rates for new deposits, with public sector banks dropping to 6.20% and private banks to 5.82%. In contrast, lending rate increases were primarily driven by private banks, where the average rose to 9.19%. The impact on borrowers varied by product; rates for personal and education loans increased, while vehicle and housing loan rates declined.

This trend continues a widening gap that began in March 2026. Since that time, the average rate on fresh deposits has fallen 40 basis points, while fresh loan rates have risen 21 basis points.