Bank Deposits to Stay Adequate in FY26, But Structural Shifts May Pressure Stability, Costs: Crisil

Deposit growth at banks is expected to remain adequate this fiscal year, supported by improved liquidity conditions, and in turn, provide the necessary backing for a projected credit growth of 11-12 per cent, according to a report by Crisil Ratings on Friday.

The ratings firm, however, flagged that two key trends -- a decline in household contribution to term deposits and a lower current account and savings account (CASA) ratio -- indicating a structural shift in deposit composition. These shifts could pose challenges to deposit stability and affect funding costs over the medium to long term, particularly during periods of tight liquidity.

Crisil noted that deposit mobilisation will benefit from various regulatory measures aimed at improving system liquidity. Since April 2025, the Reserve Bank of India’s interventions have resulted in adequate liquidity, a marked improvement from the tighter conditions seen earlier.

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The phase-wise reduction of 100 basis points in the cash reserve ratio (CRR), which released around Rs 2.5 lakh crore -- equivalent to more than 1 per cent of total outstanding deposits --into the system, has also provided support. In addition, revised liquidity coverage ratio (LCR) norms are expected to free up investments worth approximately Rs 1.9 lakh crore.

While these steps should bolster deposit growth, Crisil highlighted that the composition of deposits, which determines their stability and cost, is undergoing changes. The share of households in incremental deposits raised declined to 52 per cent in fiscal 2025 from 67 per cent in fiscal 2020. 

The shift is on account of the lower allocation of households towards deposits as part of their gross financial savings. This metric has been seeing a downward trend as retail depositors have increasingly migrated to alternative investment avenues.

“On an outstanding basis, the share of household deposits in total bank deposits contracted from 64 per cent to 60 per cent between fiscals 2020 and 2025, with non-financial corporations filling the gap with a 4 per cent increase. This shift has implications for deposit stability and costs, as corporate depositors tend to be more rate sensitive and prefer shorter tenures,” said Subha Sri Narayanan, Director, Crisil Ratings.

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“During periods of tight liquidity, this behaviour can potentially lead to faster deposit outflows and increased funding costs for some banks. Looking ahead, as alternative investments continue to gain popularity, we expect the share of household deposits to decline further.”

The decline is most pronounced in term deposits, where the household share has fallen from 58 per cent to 54 per cent over the past five years. In comparison, household share in CASA deposits has registered only a marginal decline.

At an overall level, the CASA ratio has also trended downward, standing at around 36 per cent as of June 2025, compared with over 42 per cent in March 2022 -- a 25-year high. The ratio had received a boost in the aftermath of demonetisation and during the Covid-19 pandemic, when term deposit rates were low. 

With term deposit rates rising post-2022, CASA’s relative attractiveness diminished. Within CASA deposits, current deposits have stayed range-bound, while savings deposits have declined.