The Bell Tolls For Thee! Monetary Policy Rates Hold The Key

Mumbai: As the domestic economic landscape, and the Reserve Bank’s monetary policy rapidly reshape every aspect of Indian society, senior citizens and financial sector gurus on Tuesday called for human rights to be placed at the centre of this transformation, especially under Modi 3.0.

Following the Reserve Bank’s much-publicised 50 bps jumbo rate cut (June 6, 2025), depositors now feel the pinch as banks have reduced interest rates on all deposits. The reduced rate of interest on deposits is challenging as senior citizens, pensioners and those who are less risk tolerant, who principally rely on income from fixed deposits, face the challenge.  

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“Depositors are worried over the inflation adjusted return, which is the return after adjusting for inflation. The real return is not competitive with the return on other investment options.  For example, the interest rate on deposit is 7%, and the inflation is 4%, the real return on the deposit is slightly below 3%. Any reduction in the interest rate will only bring down the real rate of return to investors,” Adv. R Madhusoodanan, a former senior SBI official and a wealth management expert, told The Free Press Journal.

Depositors are disappointed. For example a deposit of Rs 10 lakhs with the existing rate of interest of say 7.5 percent p.a. gives a monthly interest of Rs 6,250 per month. With the reduced interest rate by 50 bps, the monthly interest stands lower at Rs 5,833, a reduction of Rs 417 per month and yearly Rs 5,000. For senior citizens and pensioners, this reduction is worrisome.

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“The bell tolls for you. In fact, the financial hardship of those who rely on income from fixed deposits affects all, and will have wider repercussions. Earnings, from wherever they come, will have an impact on the society, one’s struggle is everyone’s challenge,” said Y Venketaraman, a retired management expert.

All banks reduced interest rates on savings and fixed deposits ranging from 20 to 55 bps. SBI, Yes Bank, HDFC, ICICI, Bank of Baroda, Canara Bank and Bank of India have already reduced the interest rates on deposits across various maturities.

The impact of the reduction of the interest rate on deposits is applicable to savings bank accounts and fresh deposits. The existing deposits continue to earn the same rate of interest till the maturity. Upon maturity of such high yielding deposits, the retailers are likely to explore various other investment options such as stocks, mutual funds, gold, higher rated bonds etc.

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The apex bank cut repo rates on three instances from February 2025. “The interest rate cut will significantly impact senior citizens and pensioners as most of them depend on income from fixed deposits. With lower returns on savings, many will struggle to maintain their financial stability, and covering essential expenses such as healthcare and living will be in question. Insurance companies have raised premium levels. The fall in income can force them to reconsider financial strategies, potentially leading to a shift towards riskier investments or a decline in standard of living. It’s crucial for policymakers to consider the needs of this vulnerable demographic when making decisions on interest rates and economic measures. There should be a desired degree of consideration to various categories of people when it comes to interest rate cuts. Weighing all in one gauge is unjustified,” said Dr J Retnakumar, a veteran insurance and financial expert.

“We’re so central, yet so ignored. Many of us are in a sea of worries as banks are reducing interest rates on all deposits, and I feel, often, banks overlook seniors,” a recently retired government employee, Shakuntala Yadav (name changed as requested to maintain privacy and confidentiality), said.

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She is planning to deposit her PF and other savings in a good bank (?), dreaming of attractive monthly interest, and high value on maturity for her grandchildren. The indispensable role of senior citizens in building and maintaining a healthy society shouldn’t be overlooked at any cost. We need to rightly interpret the philosophy of “Indianness” and the deep mantra of “Vasudhaiva Kutumbakam”.

Citizens, in general, however, appreciate the actions of a few banks for scrapping the minimum balance charges.

In the current interest rate scenario, depositors may not block their funds for a longer period as they have to prematurely close the deposits and pay a penalty in case the regulator decides to go for an upward revision in the repo rates in the near future. In such a scenario, banks will find it difficult to match the asset liability management. The possibility of depositors going for short-term deposits to manage the interest rate risk cannot be ruled out.

“This time, the RBI has taken a neutral policy, and in future, the RBI may increase or pause the policy rates with less chances of reducing,” experts said.

“The bell tolls for thee” can explained as: The first unfortunate are those citizens who depend only on interest income, and the kith and kin of senior citizens, and the society, in general, as when these depositors get reduced income, they spend less, and banks will get affected when short-term deposits (funds) are used for long-term loans, banks may face liquidity concerns. Since the cost of borrowings has come down significantly, more lending is going to happen across all sectors. With higher outflow by way of loans and less inflow of deposits, banks have to resort to external sources of funding which used to be costly. More precisely, this situation is going to be challenging for banks to maintain their net interest margin, and the bottom line.