Retail depositors and government entities are evolving in their approach to fund management, increasingly wary of settling for lower returns offered by banks, especially when alternative investments yield more favorable results. Bankers acknowledge this shift, noting that mobilizing low-cost current account and savings account (CASA) deposits—a crucial element for offering competitive loan rates and maintaining net interest margins—has become increasingly challenging.
Higher-yielding investment options such as capital markets, mutual funds, bonds, and small savings schemes, along with depositors utilizing auto-sweep facilities, are hindering banks’ abilities to grow savings account deposits. Additionally, both Central and State governments have adopted a “just-in-time” funding principle, moving away from leaving idle funds in banks, which historically contributed to banks’ available capital.
The situation poses a dilemma: while banks seek to enhance their net interest margins, depositors expect greater returns on their investments. According to a report from CareEdge Ratings, scheduled commercial banks (SCBs), excluding regional rural banks, saw their proportion of deposits fall from 41.7 percent in June 2023 to 39.3 percent in June 2024, and further to 38.2 percent by June 2025. In contrast, the share of high-cost term deposits within SCBs rose to 61.8 percent in June 2025, up from 60.7 percent in June 2024 and 58.3 percent in June 2023.
Amitava Chatterjee, MD and CEO of Jammu & Kashmir Bank, remarked, “Depositors, be it retail or wholesale, have grown wiser. Obviously, they don’t want to miss out on the earning opportunity.” He noted that retail depositors are increasingly directing their funds to mutual funds and capital markets, while governments are streamlining their cash management.
He further underscored that the growth of savings accounts largely depends on attracting new customers, including younger generations. Current account growth, he asserted, hinges on providing convenient transaction banking services, such as day-to-day payments and cash management.
“I get afraid when the stock markets stabilize,” Chatterjee stated, warning that once markets show consistent growth, deposit inflows may falter.
Banking sector analysts emphasize banks’ heavy reliance on deposits for lending. For the time being, funds will likely continue to flow into banks due to the immaturity of alternative investment instruments. However, banks will eventually face a reality where they may need to borrow to lend—an occurrence already seen in the U.S.
In light of the pressure on CASA, the State Bank of India (SBI) aims to enhance its portion of low-cost deposits by increasing customer outreach and strengthening relationships across its business segments—retail, commercial, and corporate. BP Singh, SBI’s head of financial inclusion, indicated a strategic focus on refining its CASA mix. The percentage of CASA deposits at SBI fell below 40 percent, reaching 39.36 percent of total domestic deposits in the first quarter of FY26, compared to 40.7 percent in the previous year.
To bolster CASA, SBI is targeting both new customers and reactivating “attritors” and “stagnators” within its existing client base. Karthik Srinivasan, Senior Vice President and Group Head at ICRA, noted that as of September 28, 2025, average savings account rates had dropped to 2.5 percent for major banks, down from 4 percent earlier.
“There is still a significant spread between term deposits, maintaining rates of 5.5-6 percent or higher, and savings accounts,” Srinivasan observed, highlighting that the attractiveness of mutual funds and modern banking apps are diverting funds away from traditional savings accounts.
Srinivasan emphasized the importance of evaluating the overall cost of funds rather than just focusing on CASA figures. “While CASA is a headline number, the trend regarding the cost of funds is more critical,” he said. He warned that as long as equity markets remain stable, competition for deposit growth will intensify, especially with increasing investments in mutual funds.
As depositors become savvier, banks are receiving a clear message: their trust cannot be taken for granted, and the demand for better interest rates, returns, and service is emphatic. The sentiment from depositors can be encapsulated in the phrase, “yeh dil maange more” (the heart yearns for more).
