Key Points

The report from ratings agency Crisil noted that decreasing household participation in term deposits and a reduction in current account and savings account (CASA) ratio indicate structural changes that may increase funding costs over the medium to long term.

The Reserve Bank of India (RBI) has injected liquidity since April 2025, improving conditions from the tight liquidity situation.

A 100-basis-point reduction in the cash reserve ratio is injecting approximately Rs 2.5 lakh crore into the system, and revised liquidity coverage ratio regulations could release an additional Rs 1.9 lakh crore, the report noted.

As retail depositors increasingly migrate to alternative investment avenues, the share of household incremental deposits has dropped to 52 per cent in fiscal 2025, down from 67 per cent in fiscal 2020.

"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," said Subha Sri Narayanan, Director, Crisil Ratings.

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, she added.

Within CASA deposits, interestingly, the share of current deposits has remained relatively range-bound, while the share of savings deposits has declined.

As deposits account for over 90 per cent of their total borrowings, individual banks may seek to diversify their funding sources to mitigate potential risks, the firm suggested.

- IANS