The Reserve Bank of India (RBI) has released its latest Financial Stability Report (FSR). The report says that while Indian banks are currently strong, they are facing a big problem with funding. People are not putting money into low-cost deposits like they used to. This is making it harder for banks to provide loans without spending too much on interest costs.

In the financial year 2026, term deposits (Fixed Deposits) made up 60.8 per cent of new deposits. This is an increase from 58.2 per cent the previous year. On the other hand, CASA deposits (Current Account and Savings Accounts) fell to 33.4 per cent from 40.2 per cent. Banks love CASA because it is cheap money for them. When people move money to FDs or CDs (Certificate of Deposits), the bank has to pay a much higher interest rate.

Why is this happening? Savers in India are changing their habits. Instead of keeping money in simple bank accounts, they are investing in equities (stocks) and mutual funds to get higher returns. The RBI noted that the 'convenience yield' of banks is falling. This jargon means that the traditional benefits of banks—like safety and easy access—are no longer enough to keep customers from looking for better profits elsewhere.

This shift creates a 'deposit franchise' problem. A deposit franchise is a bank's ability to keep stable, low-cost money over a long time. Because people are moving money to more volatile investments, banks have to worry about 'run-off rates.' This is the speed at which money might be withdrawn during a time of stress. To stay safe, banks now have to keep more High-Quality Liquid Assets (HQLA) to meet their Liquidity Coverage Ratio (LCR) requirements.

For bank officers, this means the pressure to round up retail deposits will increase. Banks have been selling their excess SLR (Statutory Liquidity Ratio) investments—which is the extra government bonds they hold—just to get enough cash to give out loans. This has caused their LCR buffers to shrink. If credit demand stays high but deposits don't grow, banks will have to compete even harder for every rupee from households.

Looking ahead, the RBI expects some relief from new measures meant to improve capital flows. These should help banks get access to rupee liquidity (cash) that is less expensive. However, the days of easy, low-cost savings deposits might be over for now. Bank staff will likely see more targets for bringing in stable retail deposits as competition with the stock market continues to grow.