Small Savings Rates Cripple Indian Banks: A Funding Crisis Looms
Business
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Moneycontrol•12-01-2026, 06:38
Small Savings Rates Cripple Indian Banks: A Funding Crisis Looms
- •Indian banks face a funding crisis as deposit growth lags loan growth, forcing reliance on costly market borrowings.
- •Government-backed small savings schemes offer rates banks cannot match, creating a structural disadvantage and distorting the market.
- •Households prefer safe, tax-advantaged small savings, while banks struggle with expensive or unstable funding sources.
- •Inefficient deposit mobilization squeezes bank margins, slows monetary policy transmission, and constrains lending growth.
- •Aligning small savings rates with market conditions is crucial for banks to price deposits commercially, improving lending and financial stability.
Why It Matters: High small savings rates are stifling Indian banks' deposit growth and profitability, hindering lending.
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