SBI Chair explains why lending rates may not fall

India got an unprecedented $136 billion in foreign exchange deposits. The country's largest lender, State Bank of India (SBI), got $10.9 billion of that. Chairman CS Setty believes that most of this money will eventually flow into loans, but the lending rates may not fall in a hurry despite the liquidity surge.

“With the deposit rates remaining as they are, the scope for cutting down the MCLR is limited,” he said. MCLR stands for Marginal Cost of Funds-Based Lending Rate, the lowest interest rate a bank can charge for a loan.

These differ from repo-linked loans, which follow the benchmark set by the Reserve Bank of India (RBI). As of December 2025, 65.4% of all outstanding bank loans in India were linked to the repo rate, while 32% were lent based on MCLR, RBI data showed.

Even the repo rate is expected to inch higher as the central bank focuses on taming the rising trend in inflation. However, Setty doesn't expect a rate hike by the central bank before December.

What the forex deposits will do is shrink the earlier gap between deposits and loan book, providing some relief to the lenders, not necessarily the borrowers. Moreover, current demand for credit is strong, particularly from renewable energy and data centres, which could help banks hold their ground.

“What we are seeing is sustained and robust credit growth, both in SBI as well as in the banking industry. It’s coming across the segments, not necessarily on the corporate side itself. Retail has always been driving the growth. SME continues to be robust,” he said.

SBI’s roughly ₹5 lakh crore corporate loan pipeline was evenly split between fresh capacity creation and working-capital requirements.

Good credit growth, even at current lending rates, could cushion the net interest margin, which has been trending down in recent quarters.

Bank	Q1 FY26	Q4 FY26	Q1 FY27
Axis Bank	3.80	3.62	3.46
Bank of Baroda	2.91	2.89	2.77
Canara Bank	2.55	2.54	2.52
HDFC Bank	3.40	3.40	3.26
ICICI Bank	4.34	4.32	4.36
Punjab National Bank	2.70	2.47	2.50
State Bank of India	2.89	2.81	2.86
Union Bank of India	2.76	2.64	2.80

SBI had earlier guided for a 3% net interest margin for the full year ending March 2027, and the chairman believes the fresh forex deposits can be deployed in four to five months without squeezing the margin.

The state-owned lender is gunning for 14-15% credit growth in the current financial year, compared to a 16.8% rise in gross advances in FY26.

Read more: ICICI Bank closes in on HDFC Bank, market-cap gap shrinks to ₹49,167 crore