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There may be a 50 basis points (bps) hike in the repo rate in the Monetary Policy Committee’s December 2026 bi-monthly monetary policy review meeting, according to State Bank of India Chairman CS Setty.

This will be followed by a pause till March-end 2027, he said at a BFSI Summit organised by Business Standard.

The RBI’s rate-setting had upped the policy repo rate by 25 basis points from 5.25 per cent to 5.50 per cent and changed the monetary policy stance from neutral to calibrated tightening at its last meeting (October 5- 7) amid rising inflationary pressures even as growth has been resilient.

Setty observed that increase in interest rates will definitely influence the composition as well as the quantum of credit demand, but not necessarily immediately.

“I think rate-sensitive sectors, particularly the discretionary spending related borrowings probably would moderate. But I would like to differentiate between weakening credit cycle and moderation in the credit demand. I think we need to distinguish that.

“One of the important things to recognise is we are entering the rate hike cycle with a robust growth rate — you have a rate hike as well as a projection of 7.1 per cent growth rate. That means you will have sustained credit growth coming from the real economy’s demand for credit,” he said.

So, if a couple of rate hikes are going to be there, the discretionary consumption demand and consumption credit probably will be impacted. But it is unlikely that productive activities will see any less demand for credit.

Setty emphasised that there is only so much the interest rates can propel customers to come into deposits.

“What is important is in terms of your service quality and what is the value proposition you give to a customer in terms of maintaining the account. And what we also have seen fundamentally, the shift is not only happening from bank deposits to other alternative instruments, within the bank also you see the shift in composition,” he said.

The SBI chief highlighted that the movement of funds from savings account to fixed deposit is so easy. Ease of doing business also is moving the structural composition of the deposits.

Setty underscored that deploying the $10 billion plus that SBI mobilised via Foreign Currency Non-Resident (Bank) deposits under the RBI’s special foreign currency swap window during the June 8-August 31, 2026 period is not a major issue.

“In a Rs 60 lakh crore universe of deposits what we have, it (FCNR-B deposits) is definitely providing short term liquidity, obviously. But I do not think its deployment is an issue.

“Even for the system, I believe, if we combine the robust credit demand and the liquidity absorption measures by RBI, I think we should not really worry about it. A lot of people ask me whether there would be an exuberance in lending and all. I do not think we need to worry about that part,” he said.

The liquidity generated by the FCNR (B) deposits can be absorbed by the banking system in two to three quarters.

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