The Crossbill News Desk
India’s household saving patterns are undergoing a marked shift, with money steadily moving away from traditional bank deposits and flowing into market-linked instruments, according to the latest data highlighted in the Reserve Bank of India’s bulletin.
After two years of growth, household deposits in banks have now started shrinking, signalling a reversal in a key pillar of financial stability.
Bank deposits held by households fell by 8.97% to Rs 12.54 lakh crore in the financial year ending 2025. Other conservative savings avenues also saw sharp declines.
Investments in life insurance funds dropped by nearly one-fifth, or 17.3 per cent, to Rs 5.3 lakh crore, while small savings schemes, excluding provident and pension funds or PPF, declined by about 24 per cent.
In contrast, households are increasingly turning to riskier financial assets. Equity investments surged by nearly 153%, while mutual fund inflows jumped 95% over the year, according to The Hindu Businessline.
Even cash holdings rose sharply, by 77.6%, suggesting higher liquidity needs and stronger consumption tendencies among households.
This reallocation is reflected in the changing composition of financial savings. The share of bank deposits in total household financial savings dropped from 40.9% in FY21 to 35.2% in FY25. Over the same period, mutual funds expanded dramatically from just 2.1% of household savings to 13.1%.
The growing preference for market instruments has also created stress for the banking system. The Economic Times reported that bank credit is rising much faster than deposits.
According to Mint, the incremental credit-deposit ratio, which measures fresh loans against new deposits, has climbed to 102%, compared with 79% a year earlier. A ratio above 100% means banks are lending more than what they are mobilising in deposits, forcing them to depend on alternative funding sources.
As cited by three bank executives, this has led lenders to rely on market borrowings, liquidation of excess Statutory Liquidity Ratio (SLR) holdings and “balance-sheet buffers.”
Prakash Agarwal of Gefion Capital told Mint that weak deposit ratios are pushing banks to compete aggressively for funds, and he warned that the gap between lending and deposit growth is unlikely to narrow soon.
Analysts say this trend reflects a deeper structural shift towards what is described as the “financialisation of savings,” a process that has accelerated since the COVID-19 pandemic. Financialisation of savings refers to households moving money out of bank deposits and into mutual funds and equities.
They also note that the mutual fund industry’s assets under management have grown much faster than bank deposits over the past decade.
The potential risks of this shift have been flagged earlier by policymakers. In 2024, then RBI governor Shaktikanta Das had warned of possible headwinds for banks and the broader economy if the slowdown in deposit growth continued.
Speaking to CNBC, he said there was no immediate cause for alarm, “but there could be trouble ahead if the situation persists.”
After two years of growth, household deposits in banks have now started shrinking, signalling a reversal in a key pillar of financial stability.
Bank deposits held by households fell by 8.97% to Rs 12.54 lakh crore in the financial year ending 2025. Other conservative savings avenues also saw sharp declines.
Investments in life insurance funds dropped by nearly one-fifth, or 17.3 per cent, to Rs 5.3 lakh crore, while small savings schemes, excluding provident and pension funds or PPF, declined by about 24 per cent.
In contrast, households are increasingly turning to riskier financial assets. Equity investments surged by nearly 153%, while mutual fund inflows jumped 95% over the year, according to The Hindu Businessline.
Even cash holdings rose sharply, by 77.6%, suggesting higher liquidity needs and stronger consumption tendencies among households.
This reallocation is reflected in the changing composition of financial savings. The share of bank deposits in total household financial savings dropped from 40.9% in FY21 to 35.2% in FY25. Over the same period, mutual funds expanded dramatically from just 2.1% of household savings to 13.1%.
The growing preference for market instruments has also created stress for the banking system. The Economic Times reported that bank credit is rising much faster than deposits.
According to Mint, the incremental credit-deposit ratio, which measures fresh loans against new deposits, has climbed to 102%, compared with 79% a year earlier. A ratio above 100% means banks are lending more than what they are mobilising in deposits, forcing them to depend on alternative funding sources.
As cited by three bank executives, this has led lenders to rely on market borrowings, liquidation of excess Statutory Liquidity Ratio (SLR) holdings and “balance-sheet buffers.”
Prakash Agarwal of Gefion Capital told Mint that weak deposit ratios are pushing banks to compete aggressively for funds, and he warned that the gap between lending and deposit growth is unlikely to narrow soon.
Analysts say this trend reflects a deeper structural shift towards what is described as the “financialisation of savings,” a process that has accelerated since the COVID-19 pandemic. Financialisation of savings refers to households moving money out of bank deposits and into mutual funds and equities.
They also note that the mutual fund industry’s assets under management have grown much faster than bank deposits over the past decade.
The potential risks of this shift have been flagged earlier by policymakers. In 2024, then RBI governor Shaktikanta Das had warned of possible headwinds for banks and the broader economy if the slowdown in deposit growth continued.
Speaking to CNBC, he said there was no immediate cause for alarm, “but there could be trouble ahead if the situation persists.”
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