RBI governor calls competition for deposits “good” if it’s transparent

Mumbai: Competition among banks while mobilising deposits is “good” as long as it is transparent, Reserve Bank of India governor Sanjay Malhotra said on Friday in response to a question on recent deposit-linked marketing practices unearthed at a large private sector bank.

“Competition is healthy, competition is good. As long as it is transparent, as long as it is fair, competition is good,” the governor said at the post-monetary policy press conference.

HDFC Bank’s share price declined over 2% on 27 May after an Indian Express news report said the lender conducted an internal vigilance investigation into “differential interest” payments worth ₹45 crore made to state-owned Maharashtra State Road Development Corporation.

The funds were allegedly routed through the bank’s marketing department and recorded as contribution toward a road safety awareness campaign via four local vendors, instead of as interest payments on deposits. The investigation was initiated shortly before HDFC Bank’s chairman Atanu Chakraborty resigned on 18 March, the report had said.

Transparency important

While the RBI does allow differential interest rates on deposits based on the customer profile (such as senior citizens) or tenure of the deposit, it has a “very clear policy” as to when these differential rates can be applied, Malhotra said on Friday.

“They have to be transparent,” he said, adding that banks need to display these rates clearly for everyone to see. “Beyond that, if someone is giving [different interest rates], it is certainly not acceptable.”

HDFC Bank’s deposits grew 14.4% in FY26 to ₹31 trillion, with gross advances expanding 12% to ₹29 trillion as of 31 March, 2026.

Following the report, the lender in a statement said that its internal audit team conducts reviews, identifies, and presents observations from time to time. “As such, the observations of Internal Audit function are comprehensively addressed by the Bank and that applies to the matter in question.”

The bank maintains sound financial and risk management practices with robust internal control and oversight, it added. “We remain committed to the highest standards of corporate governance and regulatory compliance.”

Some industry experts had then said that such marketing incentives are a common industry practice to attract a variety of deposits.

Difficulty raising deposits

Deposit mobilisation has been a challenge for banks for almost three years now due to growth in credit outpacing deposits. System-level bank credit grew 16.1% to ₹214 trillion in FY26, whereas deposits rose 13.5% to ₹262 trillion, as per RBI data. Latest figures show that the differential in growth widened: bank credit grew 16.1% year on year in the fortnight ended 15 May, while deposits expanded 12.2%.

This relatively slow growth in deposits has constrained the ability of banks to cut interest rates on deposits leading to a higher transmission of the central bank’s rate cuts in lending rates over the past year, as compared to deposit rates.

The central bank cut the policy repo rate by a cumulative 125 basis points in four tranches between February and December 2025. The average outstanding loan rates at banks fell to 8.98% in April 2026, down 89 basis points (bps) since January 2025. In comparison, average rates on outstanding deposits declined only 50 bps to 6.59% over the same period. (A basis point is one-hundredth of a pecentage point.)

The RBI chief, however, said that transmission on the deposit side has been “satisfactory” considering the “whole economic macroeconomic situation”. “I think it is quite satisfactory, and we continue to work on further improving it wherever we find there is scope,” he said.