Non-Household Deposits Reach Record Share While Private Banks Strengthen Their Position in India's Banking System

India's banking sector is undergoing a significant transformation in the composition of its deposit base, reflecting changing saving habits, increasing institutional participation and the growing sophistication of the country's financial ecosystem. A recent study by CRISIL highlights that non-household depositors, including financial institutions and corporates, are playing an increasingly important role in driving deposit growth, even as households remain the backbone of the banking system.

The findings indicate that India's deposit market is evolving beyond traditional retail savings, creating both opportunities and challenges for banks as they compete for funds in an increasingly diversified financial environment.

Banking Deposits Surge Beyond ₹262 Trillion

India's scheduled commercial banks collectively held deposits worth ₹262 trillion in FY26, representing a healthy growth of 13.5% compared to the previous year. The increase was supported by several factors, including liquidity-enhancing measures by the Reserve Bank of India (RBI), a reduction in the Cash Reserve Ratio (CRR), and tax-related incentives that improved the flow of savings into the formal banking system.

The strong growth underscores the resilience of India's financial sector despite increasing competition from alternative investment products such as mutual funds, equities and insurance-linked savings schemes.

Corporate and Institutional Deposits Gain Share

One of the most notable trends emerging from the report is the rising contribution of non-household entities to the overall deposit base.

The share of deposits from financial corporations and non-financial corporations increased to 26.3% in FY26 from 20.5% in FY19. This marks a significant shift in the structure of banking liabilities and reflects the growing role of institutional money in India's financial system.

Experts believe the trend is being driven by greater formalisation of economic activity, stronger corporate cash management practices and increased reliance on the banking system for treasury operations.

The development also indicates that businesses are maintaining larger balances within the formal financial ecosystem, contributing to overall banking sector liquidity.

Household Deposits Remain the Foundation

Although household deposits have witnessed a gradual decline in share, they continue to represent the largest contributor to the banking system.

The household segment accounted for 59.3% of total deposits in FY26, compared with 63.2% in FY19. While this decline may appear significant, analysts emphasize that it reflects diversification rather than a reduction in savings.

Indian households are increasingly investing in mutual funds, equity markets, exchange-traded funds (ETFs), retirement products and insurance schemes. The rapid growth in Systematic Investment Plans (SIPs) and retail participation in stock markets has redirected a portion of household savings toward capital market instruments.

Despite this shift, retail depositors continue to provide the most stable and cost-effective funding source for banks.

CASA Ratios Continue to Decline

The report highlights another important trend: a gradual shift from low-cost Current Account and Savings Account (CASA) balances toward higher-yielding term deposits.

The share of term deposits increased from 58% in FY19 to 61% in FY26, while CASA's contribution declined from nearly 42% to around 39%.

This trend reflects changing customer preferences amid higher interest rates. Depositors are increasingly seeking fixed-return products that offer better yields than traditional savings accounts.

For banks, the decline in CASA ratios presents a challenge because CASA deposits are typically the cheapest source of funding and play a crucial role in supporting profitability.

Retail Depositors Still Drive Low-Cost Funding

Even though households account for a smaller share of total deposits than before, they continue to dominate low-cost banking balances.

Nearly 70% of the banking system's CASA deposits originate from household customers. In contrast, financial institutions and corporate entities contribute only about 22% of CASA balances.

This highlights the strategic importance of retail deposit mobilisation. Banking experts note that maintaining a strong household deposit franchise remains critical for ensuring funding stability, liability quality and sustainable margins.

RBI Measures May Boost NRI Deposits

Deposits from overseas Indians and other international sources accounted for 6.2% of total banking deposits in FY26, compared to 7.1% in FY19.

However, recent RBI initiatives aimed at encouraging Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit inflows could provide additional support to deposit growth in FY27.

Industry analysts expect these measures to attract fresh foreign currency deposits and strengthen the contribution of non-resident funds to India's banking system.

The move comes at a time when banks are actively seeking diversified funding sources to support credit growth.

Metro Cities Lead Deposit Growth

Metropolitan regions continue to dominate India's deposit landscape. The share of deposits originating from metro centres rose to 53.2% in FY26 from 51.6% in FY19.

Meanwhile, rural and semi-urban regions maintained a relatively stable share of around 26.1%, demonstrating the continued importance of smaller centres in India's financial ecosystem.

Interestingly, CASA ratios remain considerably stronger in rural and semi-urban areas. Rural centres reported CASA ratios of 56.1%, while semi-urban regions recorded 48.7%, significantly higher than metro centres at 32.9%.

This suggests that traditional banking relationships remain stronger in smaller towns and rural markets.

Private Banks Continue to Capture Market Share

Another major structural shift is taking place within the banking industry itself.

Private sector banks increased their share of system deposits to 35.4% in FY26 from 28.6% in FY19. During the same period, public sector banks saw their share decline to 55.6% from 63.2%.

The trend reflects the success of private lenders in leveraging technology, digital banking platforms, customer-centric services and targeted deposit mobilisation strategies.

Many private banks have aggressively expanded their branch networks while simultaneously investing in digital infrastructure to attract both retail and corporate customers.

What This Means for the Banking Sector

The changing composition of deposits signals a maturing financial system where institutional participation is rising alongside increasing retail financialisation.

For banks, the future will depend on their ability to balance deposit growth with funding costs while maintaining healthy CASA ratios. Institutions that successfully combine retail strength, corporate relationships and digital capabilities are likely to emerge as winners in the next phase of India's banking evolution.

As credit demand continues to rise and competition for deposits intensifies, deposit mobilisation will remain one of the most critical strategic priorities for India's banking sector through the remainder of the decade.

The evolving trends also indicate that India's financial system is becoming deeper, more diversified and increasingly integrated with broader investment markets—an encouraging sign for long-term economic growth and financial stability.