MUMBAI: The steeply fallen share of household deposits in overall term deposits, altering the overall composition of banks’ liabilities mix, may pose new challenges to banks and the overall credit market, a report has warned.
Between fiscals 2020 and 2025, the share of households in incremental bank deposits has dropped from 67% to 52%. What is more worrying is the steep fall in the share of savings deposits in overall deposits which hit a decadal low in fiscal 2025 at 10% of all incremental total deposits. Typically more 90% of bank’s total borrowings are in the form of deposits.
The decline in the overall household share in deposits is largely attributed to term deposits, where the share of households has decreased from 58% to 54% in the last five fiscals. In contrast, the share of households in the low cost Casa deposits has seen only a marginal drop.
On an outstanding basis, the share of household deposits in total bank deposits contracted from 64% to 60% between fiscals 2020 and 2025, with non-financial corporations filling the gap with a 4% increase. This shift has implications for deposit stability and costs, as corporate depositors tend to be more rate sensitive and prefer shorter tenures, Crisil said in a report Friday.
However, the report quickly added that overall, the recent pick up deposits growth at the system level, along with the enhanced liquidity boost by way CRR cut and the new LCR norms are adequate to fund the likely 11-12% incremental credit growth this fiscal.
The report said the structural shifts underway in the form of a decline in household contribution to term-deposits and a falling current account and savings account ratio, pose challenges to banks as these two structural shifts in deposit composition may pose challenges to deposit stability and impact funding costs over the medium to long-term, particularly during periods of tight liquidity, Crisil said.
On the liquidity front, the report said the release of Rs 2.5 trillion (equivalent to 1% of total outstanding deposits into the system) through the phased-reduction of 100 bps in the cash reserve ratio (CRR) along with the revised liquidity coverage ratio (LCR) norms could free up investments of Rs 1.9 trillion.
Besides deposit growth, an important aspect is the composition of deposits, which determines their stability and cost, and consequently, the sustainability of bank credit growth. Notably, the ownership pattern of deposits is seeing a structural shift with a contraction in the share of household deposits.
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.
In line with this, the share of households in incremental deposits raised dropped to 52% in fiscal 2025 from 67% in fiscal 2020.
According to Subha Sri Narayanan, a director with Crisil, on an outstanding basis, the share of household deposits in total bank deposits contracted from 64% to 60% between fiscals 2020 and 2025, with non-financial corporations filling the gap with a 4% increase. This shift has implications for deposit stability and costs, as corporate depositors tend to be more rate sensitive and prefer shorter tenures.
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 in the overall household share is largely attributed to term deposits, where the share of households has decreased from 58% to 54% in the last five fiscals. In contrast, the share of households in Casa deposits has seen only a marginal drop.
An examination of the broader trend in the share of Casa deposits irrespective of ownership categories, has shown a declining trajectory, with the ratio reaching 36% as of June 2025, down from a 25-year-high of over 42% in March 2022.
The Casa ratio had experienced a significant boost following demonetisation, as well as between 2019 and 2022 amid the pandemic. That was when term deposit rates remained relatively low. Post-2022, term deposit rates began to rise, a trend that persisted until the recent rate cuts, thus raising their relative attractiveness vis-à-vis Casa deposits.
Within Casa deposits, interestingly, the share of current deposits has remained relatively range-bound, while the share of savings deposits has declined.
According to Vani Ojasvi, an associate director at Crisil, notably, growth in savings deposits touched a decadal low in fiscal 2025 with incremental savings deposits accounting for a modest 10% of incremental total deposits and the recent reduction in savings interest rates by banks is likely to exacerbate this trend.
Given that deposits account for over 90% of bank’s total borrowings, individual banks may seek to diversify their funding sources to mitigate potential risks. In recent periods, some banks have turned to the bond market as well as securitisation as alternative means of augmenting resources and we believe this trend will continue.
Traditionally, the share of the low cost Casa deposits has seen a negative correlation with term deposit rates, given the opportunity cost of holding Casa deposits when there is significant differential with term deposits rates. While current account earns no interest, savings account rates have been fairly steady in recent years till they were cut this year.