Context:
Axis Bank’s 25 bps reduction in savings account rates (effective April 15, 2025) signals a calibrated effort to improve Net Interest Margins (NIMs) amid easing policy rates and surplus liquidity.
- With savings deposit rates now at 2.75% for amounts up to ₹50 lakh (similar to HDFC Bank), Axis is:
- Aligning with competitive benchmarks
- Monetizing low-cost deposit base
- Offsetting potential yield compression in a low-rate environment
Margin Impact vs. Deposit Behavior Trade-Off
- Macquarie Capital estimates a 5 bps NIM expansion for Axis and HDFC Banks in Q1FY26 from this move.
- Despite low returns on savings, term deposit rates (~7%) already attract rate-sensitive depositors.
- Hence, further savings rate cuts may not significantly accelerate deposit migration.
Deposit Composition Shift:
- HDFC Bank’s savings share dropped from 33% to 24% due to merger and rate compression.
- This structural shift pressures banks to optimize pricing on stable liabilities.
Banks are making a calculated trade-off: sacrificing a small portion of cost-efficient CASA (Current Account Savings Account) deposits to lock in medium-term margin gains, especially when treasury returns remain subdued.
Competitive Benchmarking and Market Implications
| Bank | ≤ ₹50 lakh | > ₹50 lakh | Remarks |
|---|---|---|---|
| Axis Bank | 2.75% | 3.25% (up to ₹2,000 cr) | Linked to MIBOR + 70 bps above ₹2,000 cr |
| HDFC Bank | 2.75% | 3.25% | Cut effective April 12; first major mover |
| ICICI Bank | 3.00% | 3.50% | Yet to respond; risk of short-term deposit gain |
| SBI | 2.70% | 3.00% (> ₹10 cr) | Conservative stance since Oct 2022 |
Implication:
As leading private banks align savings rates, pressure builds on ICICI Bank and mid-sized players to respond, especially to avoid margin erosion.
Macroeconomic Context & Policy Signal
- RBI’s 50 bps policy rate reduction across two recent MPC meetings and OMO infusions indicate a dovish stance and system liquidity surplus.
- In this backdrop, banks are:
- Repricing liabilities more aggressively
- Prioritizing profitability over deposit growth
- Leveraging excess liquidity via open market operations (₹1.2 lakh crore in April alone)
The Axis Bank move signals a proactive liability management trend, banking on:
- Customer stickiness in savings accounts
- RBI’s accommodative policy
- Opportunity to lock in low-cost liabilities ahead of credit expansion
