RBI flags changing household savings preferences, asks banks to strengthen deposit base

The Reserve Bank of India (RBI) has called on banks to strengthen their deposit base to support sustainable credit growth amid changing household savings preferences and growing competition from alternative financial products, including equities.

RBI Deputy Governor Swaminathan J said evolving household savings preferences and greater choices among financial products were changing the environment for deposit mobilisation.

"Banks now operate within a wider ecosystem of financial institutions, fintech companies, technology platforms and other service providers," he said in a speech at the leadership conference of Indian Bank in Chennai on October 23.

“These developments call for renewed attention to business models, customer relationships and the strength of the deposit franchise,” he added.

The RBI official's remarks come at a time when the share of bank deposits in household financial savings has declined.

SBI Research has recently proposed doubling the tax exemption limit on interest earned from savings bank deposits to ₹20,000 from the existing ₹10,000 to arrest the declining share of bank deposits in household financial savings.

The report estimated that the proposal would result in revenue foregone of around ₹1,531 crore, assuming a flat return on investment of 4%.

"To arrest the fall of deposits in household financial savings, we strongly propose tax adjustments for bank deposits," the SBI Research report said.

It said that without such changes, "the incentives for investment in equities would significantly outweigh the incentives for investment in bank deposits".

SBI Research data showed that the share of bank deposits in household financial savings fell to 35.5% in FY26 from 39.4% in FY24, after dropping to 32.7% in FY25.

The report also proposed replacing the existing tax treatment of term deposits across different maturity periods with a flat rate of 15%. This could result in revenue foregone of around ₹10,500 crore.

The combined revenue foregone from the proposed changes in taxation of savings and term deposits would be around ₹12,000 crore, it estimated.

Swaminathan, meanwhile, said a stable and diversified deposit franchise supports sustainable credit expansion and reflects the depth of customer relationships.

"The objective should be to pursue growth that is balanced, appropriately funded and consistent with long-term institutional strength," he said.