Indian banks are slowly raising interest rates for both new fixed deposits and new loans. This is happening because there is a big gap between how much money banks are lending and how much they are collecting from customers. According to the latest data from the Reserve Bank of India (RBI), the Weighted Average Domestic Term Deposit Rate (WADTDR) for fresh deposits rose by 16 basis points (bps) to 5.99 percent in June 2026. A basis point is one-hundredth of a percentage point.

At the same time, the cost of borrowing is also going up. The Weighted Average Lending Rate (WALR) on fresh rupee loans increased to 8.53 percent in June 2026, compared to 8.51 percent in May. Banks are also raising their one-year median Marginal Cost of funds-based Lending Rate (MCLR). The MCLR is the minimum interest rate a bank can lend at. In July, this rate rose to 8.60 percent from 8.50 percent in June. This means new loans for cars, homes, and businesses will become more expensive.

The main reason for these hikes is the high demand for credit (loans). Credit growth stood at 18.38 percent in late June 2026, while deposit growth was only 13.22 percent. This creates a gap of 516 basis points. To fill this gap, banks need to attract more money from the public by offering better interest rates on fixed deposits (FDs). Just a year ago, the situation was the opposite, with deposits growing faster than loans.

Private sector banks are being the most aggressive in this race. Their rates for new deposits jumped to 6.21 percent from 5.94 percent. Experts from Karur Vysya Bank noted that this was driven by intense competition for bulk deposits (large sums of money from companies or rich individuals) during the first quarter of the financial year. As banks focus on building their balance sheets, they are forced to pay more to get these funds.

For bank staff, this means the pressure to bring in new deposits will remain very high. The "repricing benefit" (the profit banks make when they raise loan rates faster than deposit rates) is starting to fade. As older, cheaper deposits mature, banks must replace them with new, higher-priced deposits. This increases the bank's overall cost of funds and can put pressure on profit margins if the bank cannot pass these costs on to borrowers.

Looking ahead to the July-September 2026 quarter, experts expect deposit costs to keep rising. Since CASA (Current Account and Savings Account) growth is slow, banks have to rely more on expensive Term Deposits (FDs). Customers who are looking to invest in FDs might find this a good time to lock in higher rates, while borrowers should prepare for slightly higher monthly installments on their new loans.