Retail depositors and governments have matured in their approach to managing their funds. Depositors are unwilling to settle for lower returns from banks when other investment avenues are fetching more. Governments are not allowing their surplus funds lie idle with banks. And acknowledgment of this comes from bankers themselves.

They say mobilising low-cost current account, savings account (CASA), which is one of the key factors for offering loans at competitive interest rates and improving/maintaining net interest margins, has become a slog.

Relatively higher yielding alternative investment options such as capital markets, mutual funds, bonds, small savings schemes etc, and depositors availing of the auto sweep facility are thwarting banks’ plans to grow SA (savings account) deposits.

Moreover, the Central and State governments have adopted the “just-in-time” principle for efficient funds management. Gone are the days when banks used to enjoy float funds in government current accounts (CA).

The bottom line is that while banks want to improve their NIM, their depositors, who supply them with funds, too expect more bang for their buck.

Older and wiser

Scheduled commercial banks’ (CSBs) (excluding regional rural banks) deposits declined from 41.7 per cent in June 2023 to 39.3 per cent in June 2024, and to 38.2 per cent in June 2025, according to a CareEdge Ratings report.

Simultaneously, the proportion of high-cost term deposits in overall SCBs’ deposits edged higher to 61.8 per cent in June 2025 from 60.7 per cent in June 2024 and 58.3 per cent in June 2023.

Amitava Chatterjee, MD & CEO, Jammu & Kashmir Bank, said: “Depositors, be it retail or wholesale, have grown wiser. Obviously, they don’t want to miss out on the earning opportunity.

“Retail depositors’ funds are getting diverted from savings account to mutual funds and capital markets, among others. The Central and most of the State governments have embraced the just-in-time principle, whereby they don’t leave idle funds anymore in their current accounts.”

He underscored that savings accounts will only grow as long as banks add new customers, including Gen Z.

Further, current account growth totally depends on the convenience of transaction banking that banks provide. So, a bank that provides maximum transaction banking support, including those related to day-to-day payments, cash management, trade finance, etc. will be able to grow its CA.

“As long as the stock markets remain volatile, the deposits will keep on flowing in for banks. I get afraid when the stock markets stabilise. The moment the market stabilises and there is even a small growth trajectory, the deposits will go down,” Chatterjee said.

Market stability

Banking sector analysts emphasise that banks are dependent on deposits to a great extent for lending. So, until the bond markets and other investment instruments mature, funds will continue to flow into banks.

Alternative avenues for depositors to deploy their funds will take some time to mature. Till then, banks are safe. After that, they will have to come to terms with a situation where they will have to borrow to lend, like it happens in the US.

SBI’s case in point

Recognising the challenges on the CASA front, the State Bank of India (SBI) intends to enhance the proportion of these deposits in its overall domestic deposits by increasing customer outreach, deepening relationships, and forging synergies amongst its business verticals – retail, commercial and corporate.

For India’s largest bank, strengthening liability franchise and CASA mobilisation remains a strategic focus, per its latest presentation. Low-cost granular deposit franchise is crucial for banks to maintain their NIM.

CASA of India’s largest bank dipped below 40 per cent to 39.36 per cent of its total domestic deposits in the first quarter of FY26, against 40.7 per cent in the year-ago quarter. CASA in Q1FY24 and Q1FY23 were at 42.88 per cent and 45.33 per cent, respectively.

To shore up CASA, SBI not only aims to onboard new-to-bank customers, but also increase outreach to existing customers and activate the “attritors” and “stagnators” in its customer base.

Karthik Srinivasan, Senior Vice President & Group Head, ICRA, observed that on September 28, 2025, the SA rates went down to 2.50 per cent for most of the large banks. Earlier, it was 4 per cent, which dipped to 3.5 per cent, and then to 3 per cent.

“We have term deposits (TDs) still in the 5.5-6 per cent and above range. And that differential (between TD and SA) is fairly wide. Plus, mutual funds are giving better returns. There are apps through which one can directly book TDs/fixed deposits (FDs).

“While CASA is a headline number, what is more important is to also look at, maybe, the average cost of funds Some banks may have high CASA, but if their overall cost of deposits is 6-7 per cent, how does it help? There may other banks with lower CASA, but their overall cost of funds might still be lower,” he said.

Karthik underscored that one need not get obsessed with CASA. While it is a headline number that gets captured everywhere, maybe, one level more one needs to also see the trend of cost of funds, how that is panning out.

“But in the current environment it is difficult (for banks to attract deposits, especially CASA), when equity market is doing okay, and there is so much of money flowing into mutual funds. And institutions are not going to put money as current accounts or savings accounts with banks.

“CASA is a headline number. There will always be noise around it. Investors and depositors are also much savvier today. They have a lot of investment options. Everybody is looking at some investment avenue to make slightly better returns. So, to that extent that shift (from CASA to TDs and other attractive investment options) would have happened,” he said.

Bank depositors have come out of their comfort zone, becoming a little more adventurous with their money in their quest for higher returns. This change in depositor behaviour is a loud and clear warning to banks that their trust in the banking system cannot be taken for granted.

Through their actions, depositors are emphatically telling banks “yeh dil maange more” (the heart yearns for more) interest/ returns/ service.

Published on September 29, 2025