RBI Urges Banks to Reinforce Deposit Franchises as Household Savings Shift to Capital Markets — November 4, 2026
The Reserve Bank of India (RBI) has directed commercial banks to strengthen their deposit franchises and re-evaluate business models as Indian households increasingly channel savings away from traditional bank accounts and into capital markets and alternative financial instruments.
Delivering an address at the Leadership Conference of Indian Bank in Chennai, RBI Deputy Governor Swaminathan J noted that the environment for deposit mobilisation is undergoing structural changes driven by wider financial product availability and shifting consumer preferences.
"Banks now operate within a wider ecosystem of financial institutions, fintech companies, technology platforms and other service providers," Swaminathan said, stressing that evolving market dynamics require lenders to pay renewed attention to customer relationships and deposit stability.
Structural Migration Toward Capital Markets
Historically, bank deposits formed the cornerstone of household financial savings in India. However, the post-pandemic period has seen a structural "financialisation" of domestic savings, with retail capital surging into equity markets, systematic investment plans (SIPs) in mutual funds, and pension and insurance products.
This reallocation has created a persistent gap where credit expansion has frequently outpaced deposit growth, lifting credit-deposit ratios across the banking system and forcing lenders to lean on more sensitive wholesale liabilities, including certificates of deposit and short-term market borrowings.
Swaminathan highlighted that deposit durability is vital for systemic health: "A stable and diversified deposit franchise supports sustainable credit expansion and reflects the depth of customer relationships. The objective should be to pursue growth that is balanced, appropriately funded and consistent with long-term institutional strength."
Prudent Underwriting and Risk Pricing
While acknowledging that credit delivery remains integral to India’s broader economic expansion, the Deputy Governor cautioned lenders against compromising on core risk fundamentals. He underlined that credit growth must be backed by sound underwriting standards, appropriate risk pricing, and a clear assessment of borrowers' genuine repayment capacity.
Beyond credit and market risks, Swaminathan also highlighted that operational and technological resilience has become equally critical, urging banks to enhance data protection, cybersecurity, and vendor oversight as digital banking channels expand.
Policy Recommendations and Industry Pressure
The tightening deposit landscape has triggered calls from within the industry for fiscal interventions to restore the appeal of bank savings.
Key Industry and Regulatory Focus Areas:
- Tax Relief on Deposits: SBI Research recently proposed doubling the tax exemption threshold on savings bank deposit interest under Section 80TTA from ₹10,000 to ₹20,000, along with pitching a flat 15% tax rate on term deposits to stem the flight of retail capital.
- Shift to Term Deposits: Data shows depositors are increasingly shifting funds out of low-yielding savings bank accounts into fixed deposits to capture peak interest rates, pushing up banks' overall cost of funds.
- Liability Diversification: The central bank has cautioned that relying on short-term wholesale funds increases banks' vulnerability to liquidity shocks and interest rate fluctuations.
For Indian savers, the ongoing deposit scramble means banks are likely to maintain competitive fixed deposit yields and rollout tailored deposit schemes. For banking equity investors, however, lenders with high Current Account Savings Account (CASA) ratios and deep retail distribution networks remain best positioned to defend net interest margins against rising funding costs.
