In FY26, term deposits accounted for 60.8 per cent of banks’ incremental deposits, followed by CASA deposits at 33.4 per cent and CDs at 5.8 per cent
Funding is emerging as a key challenge, even as the banking system’s resilience remains intact, according to the RBI’s latest Financial Stability Report (FSR). The report noted that banks’ liability profile is shifting from low-cost current and savings account (CASA) to higher-cost term deposits and CDs (Certificate of Deposits), pushing up the marginal cost of funds.
This shift reflects a change in the investment preferences of savers towards higher-yielding equities and mutual funds, altering the composition of bank deposits that attract higher run-offs. The run-off rates applicable for less stable wholesale deposits are higher than the stable retail deposits, increasing the level of high-quality liquid assets required to meet LCR (liquidity coverage ratio) requirements. This rate takes into account the possibility of deposits getting withdrawn/ transferred in stressed situations.
In FY26, term deposits accounted for 60.8 per cent of banks’ incremental deposits (58.2 per cent in FY25), followed by CASA (Current Account, Savings Account) deposits at 33.4 per cent (40.2 per cent) and CDs at 5.8 per cent (1.6 per cent), per RBI data.
The report assessed that compared to the previous cycles, the inverse relationship between CASA deposits’ share and interest rate cycle appears to have weakened. With the fall in convenience yield on deposits, banks’ deposit franchise is getting affected.
Convenience yield on deposits refers to the non-interest benefits, such as convenience, safety and liquidity, that people get from holding money in bank deposits, especially in current and savings accounts. Thus, even if deposit interest rates are low, people still hold money in banks because of these benefits.
Deposit franchise refers to a bank’s ability to attract and retain stable, low-cost deposits from customers over time. Referring to the weakening of the inverse relationship between CASA deposits’ share and interest rate cycle, the report cautioned that this could weigh on their profitability as competition for household savings intensifies, even as credit demand remains strong.
credit growth
This is also reflected in banks’ running down their excess SLR (statutory liquidity ratio investments) to fund credit growth, resulting in declining LCR buffers. The recent measures to boost capital flows, however, are expected to ease the funding pressures on banks by improving their access to less-costly rupee liquidity.
Published on June 30, 2026
