Banks are under increasing liquidity management pressure because they are lending significantly faster than they are accumulating deposits | Photo Credit: FRANCIS MASCARENHAS

The central bank is seeking input from commercial lenders on how they can bring in larger and more stable deposits, as a shift in household savings into equities and other investment products threatens to snowball into a bigger problem for the country’s banks.

In meetings with banks over the past few weeks, officials from the Reserve Bank of India discussed how the growing participation in financial markets has changed the nature of bank deposits — which are now sourced more from institutions such as mutual funds as opposed to lower-cost individual household savings, according to people familiar with the matter.

The RBI, which is also the country’s financial regulator, asked banks what more could be done to attract large deposits to keep pace with loan growth, said the people, who requested anonymity because the talks were private. The discussions could pave the way for regulatory changes on the type of new products that can be offered, the people said. 

The RBI did not respond to an e-mailed request for comment. 

While the issue has been raised in recent years, there appears to be a stepped-up urgency to find a collective solution to the problem, the people said. Banks are under increasing liquidity management pressure because they are lending significantly faster than they are accumulating deposits. 

Banks’ deposit growth stood at 10.8 per cent year-on-year as of March 15, while their total loans expanded 13.8 per cent over the same period, according to RBI data. In addition, rates on banks’ certificates of deposits have climbed this year relative to the RBI’s lending benchmark, reflecting higher wholesale funding costs for commercial lenders. 

Following the central bank’s February policy review, the RBI held internal policy meetings across departments to discuss the structural issues leading to the higher cost of funds for commercial banks, as well as their elevated credit-deposit ratios, one of the people familiar with the matter said. 

In the run-up to this month’s policy review, senior RBI officials met with senior bank executives to discuss the situation, according to the people. At the meetings, some bankers flagged the need for more fundraising instruments and methods, the people familiar with the matter said. 

A key suggestion was for banks to be allowed to offer lower deposit rates to financial institutions, and higher ones to other depositors, including retail customers and non-financial companies, according to the people. That would enable lenders to adjust for regulatory costs and attract more stable deposits, they said. Indian banks currently can differentiate rates only by the size of the deposit.

Banks also discussed introducing more innovative deposit types, some of which are popular globally, according to the people. These could include so-called notice deposits — where funds can be withdrawn after customers inform the banks during specific pre-agreed notice periods — and deposits whose rates are linked to market returns. 

For years now, household financial savings in India have increasingly migrated from bank accounts into equities and mutual funds, whose returns are far higher than traditional fixed deposits. The latest RBI talks with the banks underscore the gravity of the situation, which has led some lenders to sell portfolios of retail loans to improve their credit-deposit ratios. Bank executives have also spoken publicly about the challenges. 

Some of the money has returned to banks via deposits from asset managers and other financial institutions, but such flows are considered less stable and require higher regulatory buffers. The shift has left the country’s banks with fewer funds to deploy in assets, including loans and investments, the RBI is said to have noted a trend that could ultimately undermine India’s growth ambitions.

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Published on April 15, 2026