Home / Business and Economy / Indian Banks Face Deposit Drain, Seek Costlier Funds
Indian Banks Face Deposit Drain, Seek Costlier Funds
20 Jan
Summary
- Savers shift funds from low-cost bank deposits to market investments.
- Banks increasingly rely on expensive short-term borrowing like CDs.
- CASA ratios decline as loan growth outpaces deposit mobilization.
Indian banks are confronting a growing challenge as depositors increasingly move their funds from traditional savings and current accounts to market-driven investments that offer better returns. This migration away from low-cost CASA (current account-savings account) deposits is compelling banks to seek alternative, more expensive funding sources, such as Certificates of Deposit, to maintain their lending operations.
The decline in CASA ratios signifies intense competition for deposits and a structural shift in household savings preferences. Banks like HDFC Bank and ICICI Bank have reported decreases in their CASA ratios, reflecting sector-wide pressure. This reliance on costlier, short-term borrowing methods to bridge the gap between deposit mobilization and robust credit growth could impact overall profitability if deposit growth remains sluggish.
As of December 31, 2025, loan expansion outpaced deposit growth, with loans growing at 14.5% compared to deposits at 12.7%. This dynamic, coupled with escalating competition for institutional deposits, has led banks to increasingly issue Certificates of Deposit. While this strategy supports credit growth and avoids aggressive retail deposit repricing, sustained dependence on these instruments poses a risk to bank margins.
