Summary:
The RBI raised the repo rate by 25 basis points to 5.50% in October 2026, but banks may delay increasing fixed deposit rates. Surplus liquidity from FCNR(B) inflows, credit demand and RBI liquidity measures will influence deposit pricing.
Will banks increase FD interest rates after the RBI repo rate hike?
Despite the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points (bps) to 5.50% on October 7, 2026, banks may not raise fixed deposit (FD) interest rates immediately. The need for banks to raise more deposits with higher rates has been dulled by heavy foreign currency inflows and excess liquidity.
| Indicator | Key detail |
| RBI repo rate | 5.50%, after a 25-basis-point hike |
| Policy stance | Changed to calibrated tightening |
| Main reason FD rate increases may be delayed | Surplus banking-system liquidity |
| Important source of liquidity | FCNR(B) deposits and related foreign-currency inflows |
| What depositors should know | FD rates may not rise immediately or uniformly across banks |
Why Banks May Hold Off on Raising Deposit Rates
The RBI’s latest monetary policy decision, the first repo rate hike since February 2023. The central bank also changed its policy stance from neutral to calibrated tightening amid rising inflationary pressures.
Usually, an increase in the repo rate leads to increased funding costs for the banking system as a whole and encourages banks to increase deposit rates. But now the liquidity situation is different.
Banks have received huge inflows via Foreign Currency Non-Resident (Bank) or FCNR(B) deposits. These funds have improved their liquidity positions, enabling them to meet lending needs without having to immediately increase deposit rates.
This means depositors may have to wait longer to benefit from the latest rate hike by the RBI.
FCNR(B) Inflows Pump Up Banking System Liquidity
In June 2026, RBI had announced a concessional swap facility for the banks to mobilize foreign currency deposits from non-resident Indians and swap the proceeds with the central bank at preferential rates.
The initiative has attracted large foreign funds.
Major developments in liquidity include
$143.6 billion: Amount mobilized through the facility across three windows as on Sep 18, 2026.
93% Share of funds mobilized through FCNR(B) deposits.
Banking system liquidity surplus as on September 15: ₹ 9.85 lakh crore
₹4.7 lakh crore: Surplus liquidity as of September 30.17%: Rise in bank deposits, compared with about 11-12% when the scheme was launched.
Meanwhile, credit growth in the banking system has been above 18% YoY, indicating sustained demand for borrowing and a better ability to mobilize deposits.
RBI Liquidity Measures and Changes in Deposit Rates
Now that banks are flush with funds, the RBI has been sucking out the excess liquidity gradually through open market operations (OMOs), foreign exchange swaps and variable rate reverse repo (VRRR) operations.
Liquidity in the banking system had declined further to around ₹4.98 lakh crore as on October 6 but remained in surplus.
Some banks, however, have already adjusted some deposit rates in the meantime.
Bajaj Finance has hiked its fixed deposit rates by 15-40 bps for tenures of 12 to 60 months.
Indian Overseas Bank also changed some of its deposit rates, raising its 12-17-month rate from 6.60% to 6.80%.
Such changes illustrate how the pricing of deposits can vary between institutions based on their funding needs and the maturity of the deposits.
What Does This Mean for Banks and Depositors?
Stable deposit costs and increased lending rates for banks may provide a temporary boost to net interest margins (NIMs).
Some 68.2% of bank floating-rate loans are linked to external benchmarks, meaning that the rates charged on loans can be adjusted more quickly than the cost of deposits.
But higher policy rates may not immediately reflect in better returns on FDs for depositors.
How quickly rates will rise in the future will depend on liquidity absorption, credit demand and deposit competition.
Conclusion
Abundant liquidity continues to influence deposit pricing of banks even as RBI’s 25 bps hike has changed the monetary policy backdrop. In time, surplus funds will start to dry up slowly and it will be the rate of deposit growth and demand for lending that will determine when banks start to pass higher interest rates on to savers.
