Deposit Growth at Indian Banks Reaches 10.8% as RBI Calls for Solutions to Funding Challenges

1. By March 2026, bank loans grew by 13.8% if we compared with the previous year, while deposits increased by 10.8%. This showed a high record credit-to-deposit ratio of 83%.

2. The RBI is responding to shifts in bank deposits, so more institutions, such as mutual funds, are getting involved, which is changing the cost of traditional household savings.

Indian Banks are disbursing more loans compared to bringing in deposits; the credit-to-deposit ratio is at a record high of 83%.

Banks fill the gap between loans and deposits, banks are borrowing more from short-term markets via Certificates of Deposit. 

The cost of these certificates has increased to about 7.1%, compared to 6% in mid-2025. 

At the same time, the share of low-cost CASA deposits fell from 44.8% in FY22 to 37.9% by December 2025. 

More and more Indian households are moving their savings out of banks.

Bank deposits made up 40.9% of household financial savings in FY21, but this dropped to 35.2% by FY25. At the same time, mutual funds grew from 2.1% to 13.1%.

Indian families are changing their saving style, and banks are starting to notice the effects.

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When Lending Outpaces Saving: Why India's Deposit Gap is a Cause for Concern

Do you know? Banks use the money from people's deposits to make loans. But when loans increase almost three times faster than deposits, problems can arise. 

In FY25, household bank deposits fell by 8.97% to ₹12.54 lakh crore, the growth of the previous two years. 

This happened because banks, following the RBI's repo rate cuts, have maintained lower fixed deposit rates throughout 2025. 

• In FY2020, household deposits made up 64% of all bank deposits, but by FY2025, this had dropped to 60%.

• This is not a temporary change it points to a bigger shift because mutual funds, stocks, and SIPs offer better returns than a regular savings account.

• Mutual funds have quickly increased their share of household financial savings, going from just 2.1% in FY21 to 13.1% by FY25.

• Fitch Ratings warns that this gap could cause Net Interest Margins to fall by 0.2% to 0.3% in FY27, due to a tighter money supply and higher funding costs.

This can mean fewer home loans, less credit for small businesses, and reduced financial access for everyday Indians who depend most on banks.

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Higher FD rates are approaching: India's savers can benefit from the deposit crisis, which is actually positive news.

If you deposit on a regular basis, there is actually some good news. Here are the news banks offering better interest rates for customers because bank unable to compete with mutual funds. 

The overall CASA ratio has dropped sharply to about 36% as of June 2025 from a 25-year high of over 42% in March 2022.

Banks need to offer more appealing deposit options to customers, as many people are moving their money into mutual funds.

Conclusion

How quickly banks and regulators react to India's credit system will determine whether it continues to work well or starts struggling just when the economy needs support.