The banking sector has traditionally relied on current account and savings account (CASA) balances as a primary source of funding. However, the current environment has seen a decline in the share of CASA balances, driven by the impact of high interest rates on term deposits and the reduced multiplier effect resulting from low private and government capital expenditure.

"Institutional deposits and corporate salary accounts are still valuable, but they are no longer as reliable or cost-effective a source of funding. Increasing deposit rates, CASA compression, and corporate treasury sophistication result in idle balances being increasingly swept into higher-yielding alternatives," says Nirav Shah, Managing Director, Equirus Capital.

Salary mandates continue to have strategic value through bundled services and cross-sell, but they are more price-sensitive. Retail CASA, which is more operationally complex and fragmented, is also declining as savers shift to better-returning products and fintech platforms. "In 2025, corporate and retail deposits cannot be viewed as "free fuel" — banks have to price, manage, and defend these relationships actively. The victors will be the ones that consolidate treasury solutions, provide yield-balanced products, and treat deposits as assets earned, not liabilities," adds Shah.

This shift comes after a cycle of accelerated credit expansion followed by a slowdown, which has created liquidity constraints. In the latter part of fiscal 2025, deposit growth failed to keep pace with lending. According to analysts, the gap between credit and deposit growth, which widened considerably between 600-700 bps during fiscal 2024 and the early part of fiscal 2025, subsequently converged as banks moderated their lending activities to align credit and deposit growth

"Deposit growth, which remained subdued, necessitated that banks rely more on expensive funding options, including term deposits and Certificates of Deposit (CDs), to bridge the funding gap," says Aniket Dani, Director, Crisil Intelligence. "As a result, the issuance of CDs increased considerably, with a nearly 37% rise in fiscal 2025 compared to a nearly 27% rise in the previous fiscal year. The CASA ratio remained relatively stable at 39.4% in fiscal 2025, marginally lower than its 10-year historical average of 41%."

Analysts suggest that the reduction in CASA balances has led to an increase in funding costs for banks, while the rising proportion of External Benchmark Lending Rate (EBLR)- linked loans is impacting their margins.

To mitigate this, banks are adopting innovative tactics to mobilise retail granular deposits and build a more sustainable liability franchise. Banks are adopting differentiated approaches to manage their deposit base.

"Some public sector banks are now not levying any penalties for customers who fail to maintain minimum balance requirements, while a major private bank has introduced more stringent minimum balance requirements. These measures demonstrate a nuanced understanding of customer profiles and a deliberate attempt to optimise deposit stability," says Dani.

Additionally, banks are actively seeking to attract term depositors, as part of a broader strategy to expand their deposit base. Dani said banks are incentivising regular savings habits through recurring deposit facilities and offering competitive interest rates. They are also targeting term deposits with options such as fixed deposit-backed credit cards and deposits earmarked for green financing. "Furthermore, banks are expanding their reach to semi-urban and rural areas to increase penetration and attract more deposits. These efforts aim to reduce reliance on high-cost deposits and create a more stable funding base," added Dani.

Policy support from the Reserve Bank of India (RBI) has eased some of the pressure. The central bank’s money market operations during the first half of the fiscal year helped reduce the liquidity deficit, supporting deposit growth. A reduction in the repo rate is expected to stimulate credit growth, while a cut in the cash reserve ratio (CRR) is designed to improve the transmission of rate cuts and relieve margin pressures.

Other supportive factors include income tax benefits for savers, increasing penetration of banks in semi-urban and rural areas, and a likely pick-up in government and private capital expenditure. At the same time, the RBI has introduced an increased run-off factor for internet and mobile banking deposits. This move is aimed at strengthening bank liquidity by recognising the higher risk of quick withdrawals from digital channels. Technology and data analytics are emerging as critical tools in this environment. Banks are increasingly using data to understand customer behaviour and keep deposits 'sticky'.

"By extracting transaction habits and behaviour signals, banks can understand which of their customers are most likely to move funds and act with targeted offers, goal-based savings products, or improved user experiences," says Shah.

For corporations, real-time treasury dashboards, payroll APIs, and intelligent cash-pooling solutions improve integration and make switching less attractive.

Shah says that in today's world, it is actually the data-driven approach and seamless digital experiences that truly engage customers and maintain long-term relationships.

"The upshot is that deposits are no longer simply a matter of rate competitiveness, but rather a function of how well banks leverage data to deliver trust, convenience, and relevance," adds Shah.