India’s Deposits Are Clustering, And the Next Rate Cycle Will Show It

For the past two to three years, discussion around Indian bank deposits has largely revolved around a familiar theme: the shift from current and savings accounts to term deposits. The explanation has appeared straightforward. As interest rates rose, depositors moved money out of low-yield savings accounts and into higher-yield fixed deposits.

Yet this framing misses the more consequential structural shift unfolding within the deposit base itself.

Data from the Reserve Bank of India, analysed by BasisPoint Insight, show that term deposits are not merely growing. They are becoming increasingly concentrated within a narrow maturity band of one to three years. That subtle change in maturity structure may prove more consequential than the widely discussed CASA-versus-term-deposit shift.

Deposits remain the primary funding source for Indian banks. When banks extend loans, they rely largely on deposits as their liability base. But deposits are not homogeneous. Their maturity and pricing shape how stable and predictable bank funding is.

Savings deposits are inherently fluid. They can be withdrawn at any time and usually earn modest interest. Term deposits work differently: savers lock in funds for a fixed period in return for higher rates. For banks, that lock-in provides stability, but it also determines when that funding will have to be renewed.

The shift shows up in the RBI’s Basic Statistical Return data. After the RBI began raising policy rates in 2022, banks steadily lifted deposit rates to attract funds.

By March 2023, term deposits accounted for 56.9% of total deposits in the banking system, up from 55.2% a year earlier. By March 2024, their share had climbed to about 59.4%, even as savings deposits declined as a proportion of the total.

By March 2025, term deposits made up 61.1% of the deposit base, underscoring how decisively the deposit mix has moved during the tightening phase.

But that shift towards term deposits is only part of the story. The more interesting development lies in how those deposits are distributed across maturities.

Maturity Shift

The maturity profile of those deposits has shifted just as sharply. In March 2023, about 64.2% of term deposits had an original maturity of one to three years, up from 50.4% a year earlier. The share continued to rise thereafter. By March 2024, nearly two-thirds of term deposits — around 66.7% — sat in this band, increasing further to 68.4% by March 2025.

In other words, a growing portion of bank funding is now clustered within a single maturity window.

The reasons are not difficult to see. For depositors, one-to-three-year deposits offered a convenient middle ground. Rates in this segment rose sharply during the tightening phase, allowing savers to lock in higher returns without committing funds for very long periods in an uncertain rate environment.

Banks had their own incentives. Credit demand remained strong while deposit mobilisation lagged. Raising rates aggressively on long-tenure deposits would have locked banks into expensive liabilities for years. The one-to-three-year bucket offered a workable compromise, attractive enough to pull in funds, but not so long as to become a structural burden.

The result is a liability structure in which a substantial share of deposits matures within a relatively narrow time frame. This has important implications for how bank funding costs evolve through the interest-rate cycle.

When deposits are distributed across a wide range of maturities, they roll over gradually. Funding costs therefore adjust slowly. But when a large share sits within a narrow maturity band, substantial volumes come up for renewal at roughly the same time. In effect, funding costs begin to reset in waves.

What happens next will depend on the direction of the interest-rate cycle. If policy rates remain elevated when these deposits mature, banks may have to renew them at similarly high rates, keeping funding costs firm. If rates ease, rollovers could happen at lower levels, offering some relief to margins.

Either way, the clustering of maturities makes bank funding more sensitive to changes in monetary policy.

The pricing profile of deposits already hints at this dynamic. RBI data show that by March 2025, around 72.7% of term deposits carried interest rates of 7% or higher. A year earlier the share stood at 64.2%. In 2022-23, it was just 33.5%.

Much of the system’s funding, in other words, has been locked in at relatively high rates during the tightening phase. As these deposits mature over the coming years, they will be renewed at whatever rates prevail then. The timing of those maturities will therefore shape how quickly bank funding costs adjust when the policy cycle eventually turns.

None of this implies instability in the deposit base. Indian bank deposits remain largely retail-driven and structurally stable. What has changed is the configuration of the liability side of bank balance sheets.

The tightening cycle nudged depositors towards higher-yield term instruments. Within those instruments, the one-to-three-year maturity band has emerged as the dominant choice. The result is a deposit base that will increasingly reprice in waves rather than through a gradual, staggered process.

For bankers, regulators and investors, the debate on deposits therefore needs to move beyond the familiar CASA-versus-term-deposit framework. The more pertinent question now concerns the maturity profile of deposits and the timing with which bank funding costs respond to changes in interest rates.

India’s deposit base has quietly shifted towards the middle of the maturity curve. When the interest-rate cycle eventually turns, that structure will determine how swiftly, and how sharply, the cost of bank funding adjusts.