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The Achilles’ heel for banks: Sluggish deposit momentum

Our quarterly deep dive into deposits shows unchanged trends on deposit flows across banks, regions and the nature of deposits. Growth in deposits from non-individuals is marginally ahead of growth in deposits from individuals; growth rates for PSU and private banks are converging. Growth in CASA deposits remains weak. The downward re-pricing of term deposits has begun.

Household deposits are still showing no improving trends

The key takeaways on deposits: (1) The market share mix between public banks and private banks is at about 60:35 (Exhibit 1). The difference in deposit growth between public banks and private banks is converging (Exhibit 2). (2) Households dominate deposits at ~60% (Exhibit 3), but are growing slowly (Exhibit 4). Household deposits grew 10% yoy and were led by term deposits over savings. (3) Private banks have about 85% of their deposits coming from metro/urban regions, while that for public banks is at 70% (Exhibit 7). (4) Public banks have about 70% of their deposits coming from households, while for private banks this is at 55% (Exhibit 8). (5) There is a marginal shift in government deposits to public banks, while the share in corporate and households remains unchanged (Exhibit 9). (6) Individual deposits are higher for public banks and non-individual share is higher for private ones (Exhibits 10-14).

Current account growth slowed, while savings account growth is still sluggish

Key takeaways from CASA and term deposits: (1) CASA deposits grew 8% yoy, while term deposits grew ~12% yoy (Exhibit 15). (2) Savings deposits is a lot more diversified compared to current and term deposits (Exhibit 16). Savings growth was weak across markets, while current account deposits slowed in metro regions. (3) Government deposits have shifted back to term deposits from savings deposits (Exhibit 18). (4) The age profiles show better trends for the age profile >70 years (Exhibits 19-21). (5) Term deposits saw similar growth in non-individuals and individuals (Exhibit 22). (6) Term deposits for private banks are largely from metro/urban regions. (7) Individuals have a preference for Rs0.1-1.5 mn, while non-individual’s ticket size is higher at >Rs10 mn (Exhibits 26-28). (8) 70% of the deposits contracted are in the 1-3-year buckets (Exhibit 29). (9) 2QFY26 saw a decline in the 7-8% interest rate bucket (Exhibits 31-33), with some signs of slowdown in non-individual deposit movement.

Weak funding base implies that the revival of growth is not strong

Deposit growth remains muted versus loan growth, with no clear signs of recovery. The intense competition between public and private banks implies that any broad-based loan revival will heighten the pressure to mobilize incremental deposits, particularly low-cost funds. Weak household deposit accretion, slower growth among middle-aged cohorts, subdued CASA trends and rising reliance on high-ticket deposits underscore structural funding challenges. These dynamics will test the durability of NIM expansion, as lenders weigh sharing margin headroom with borrowers while sustaining returns for shareholders.

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