Indian banks widened their fresh loan spreads in May as they looked to protect profit margins amid ongoing rate cuts by the Reserve Bank of India. The average spread on new loans rose by 17 basis points to 3.09%, with private banks expanding spreads significantly more (+34 bps to 3.86%) than public sector lenders (+6 bps to 1.79%) . This cautious stance reflects subdued retail credit demand and banks’ reluctance to aggressively grow lending, even as RBI trimmed the repo rate by 100 bps since February—including a 50 bp cut in early June. While outstanding lending rates edged down slightly, fresh lending rates fell only modestly, illustrating the lag in repricing existing loans and ongoing pressure on net interest margins.

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