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RBI Focuses on Deposit Stability Amid Savings Shift
The Reserve Bank of India's increased attention comes as the gap between how fast loans are growing and how fast deposits are accumulating widens across India's banks.
Why Funding Costs Are Rising Sharply
Banks are facing a tough time managing their cash. By mid-March 2026, total loans had grown 13.8% year-on-year, while deposits grew only 10.8%. This large gap has pushed the credit-to-deposit ratio—a measure of loans compared to deposits—to a record 83%. To cover this shortfall, banks are borrowing more from short-term markets, especially through Certificates of Deposit (CDs). The cost of these CDs has risen significantly, now around 7.1%, up from about 6% in mid-2025. This means banks are paying more for borrowed money. Meanwhile, the share of low-cost Current Account and Savings Account (CASA) deposits has dropped from 44.8% in FY22 to 37.9% by December 2025.
A Deeper Trend: Savings Moving to Equities
This situation highlights a broader, long-term change in how Indian households manage their money. For years, people have been moving savings away from bank fixed deposits towards equities and mutual funds, hoping for better returns. Even though mutual funds saw strong inflows in March 2026, with equity funds attracting significant money and systematic investment plans (SIPs) reaching new peaks, it shows savers are fundamentally changing their priorities. Global events, like the Middle East conflict, have also reduced available cash in India and pushed up short-term interest rates by 0.5% to 0.7% recently. In March 2026 alone, $12.5 billion flowed out of capital markets, worsening the funding squeeze for banks. The RBI's actions to support the rupee have also limited its ability to add liquidity to the financial system, contributing to a cash deficit in March 2026.
Analyst Concerns: Margin Pressure and Funding Risks
Experts predict that the ongoing gap between loan and deposit growth could lead to funding shortages and higher costs for banks. Nomura expects bank profit margins to shrink in FY27 because loan growth is still outpacing deposits, viewing this shift as long-term. Fitch Ratings forecasts that Indian banks could see their Net Interest Margins (NIMs) – the difference between interest earned and interest paid – fall by 0.2% to 0.3% in FY27 due to tighter money supply and costlier funding. Higher funding expenses, along with fewer low-cost CASA deposits, make it harder for banks to be profitable. The RBI's need to stabilize the rupee also means it has less room to add cash to the system, increasing these risks. Although Indian stocks did not perform as well as global ones in 2025, recent strong inflows into mutual funds indicate continued investor interest. However, banks' ability to keep lending depends on fixing these core funding issues.
What's Next: RBI and Banks Explore Solutions
The RBI is talking with banks about possible new rules and products to attract bigger, more stable deposits. Ideas include offering different interest rates for different types of customers and exploring new options like notice accounts or deposits with rates tied to market conditions. Banks must now adjust their strategies to bring in steady, cheaper funding. This is crucial for them to continue lending and manage profits in a climate of rising costs and changing customer savings habits.