Banks are feeling the pressure on their margins, as a structural shift in household savings is forcing them to compete harder for deposits. With the Reserve Bank of India (RBI) cutting the repo rate and injecting ₹7 lakh crore in liquidity, lending rates have come down—but deposit rates haven’t followed.SS Mundra, former deputy governor of the Reserve Bank of India (RBI), said that the era of lazy deposits, where banks could rely on stable, low-cost funds, is over. With savers moving towards alternative investments, banks will need to rethink their strategies.
Mundra further emphasised the need for banks to shift from a “lend-and-hold” model to an “originate-and-distribute” approach, which would allow them to recycle assets efficiently.
Dinesh Khara, former chairman of State Bank of India, said that despite liquidity easing measures, banks are still cautious about reducing deposit rates.”When it comes to the price setters… banks like State Bank of India, who are witnessing about 12% plus growth in terms of the loan book… they have to maintain the pace of the deposit growth so they cannot be out of the market,” he said, explaining why State Bank and other large lenders have not cut deposit rates aggressively.The rise of mutual funds is also a key reason why savers are turning away from fixed deposits. With Assets Under Management (AUM) rising from ₹12 lakh crore to ₹67 lakh crore over the past decade, many savers are now more willing to accept market-linked returns. Khara said, “This generation of savers will probably have a much more mature approach to allocation.”Also Read: Credit growth to stay sluggish in FY26, says Goldman Sachs’ Rahul JainSrinivasan Varadarajan, Chairman of Union Bank of India, pointed out that the decline in current and savings account (CASA) deposits is raising the overall cost of funds, making lending more expensive. He also said that market share is increasingly concentrated among a few large banks, with smaller players struggling to compete.Also Read: More RBI rate cuts likely until demand improves: ICICI Prudential AMCFor the entire interview, watch the accompanying videoCatch all the latest updates from the stock market here
Source link
