Bank Deposit Growth Lagging Behind Credit Surge: Reliance on Costly Funds Raises Concerns
Credit growth has accelerated in recent months, but banks are struggling to expand their deposit base at a similar pace. In particular, growth in low-cost current account and savings account (CASA) deposits has slowed significantly, as retail investors increasingly turn to higher-yielding alternatives like stocks and mutual funds. These options have become more accessible due to digitisation and regulatory simplification, offering returns far above the typical 3-4% interest on CASA accounts.
According to Reserve Bank of India (RBI) data, the gap between credit and deposit growth widened from 1.8 percentage points in December to 5.4 percentage points as of June 15. Consequently, the credit-to-deposit ratio of banks rose to 82.5% from around 75% in mid-2025. The slowdown in deposit growth was highlighted in the RBI's latest Financial Stability Report.
As CASA deposits lose their share in total deposits—falling to around 39% from a peak of 44% in FY22—banks are turning to more expensive sources of funds, such as term deposits and certificates of deposit (CDs). Term deposits, including fixed and recurring deposits, offer interest rates of 7-8%, while CDs are short-term instruments used by institutions. This shift is squeezing banks' net interest margins (NIMs), though the impact has been cushioned so far by the current low-interest-rate environment.
“CASA is the low-cost liability available to banks. Additionally, on a behavioural pattern perspective, CASA can support creation of longer-tenure assets. CDs, on the other hand, have historically been used to manage shorter-duration liquidity by banks,” said Rohan Mandora, associate director at Equirus Securities.
Experts warn that reliance on costly short-term funds carries risks. Yuvraj Choudhary, research analyst at Anand Rathi Institutional Equities, explained: “CDs are wholesale, price-sensitive money with typical tenors of 3-12 months, whereas CASA is granular, behaviourally sticky retail money. In a tight-liquidity phase, CD rollover costs can spike quickly.” While banks have maintained robust financial growth so far, the increased dependence on high-cost funds is expected to affect costs more noticeably in the second half of FY27.
The sluggish CASA growth is seen as cyclical, following a post-COVID liquidity boom. However, the structural shift of retail savers toward capital markets may persist, putting long-term pressure on banks to manage funding costs prudently.
