Foreign Banks in India Face Deposit Growth Headwinds: RBI Data Signals Sharp Deceleration

A recent report from the Reserve Bank of India (RBI) has cast a spotlight on the evolving dynamics within India's financial sector, revealing a significant deceleration in deposit growth for the Indian branches of foreign banks. The data indicates that this crucial metric slumped to a modest 6.8 percent in the fiscal year 2025, a noticeable dip from previous periods and a trend that warrants closer examination.

This slowdown isn't merely a statistical blip; it reflects a tightening competitive landscape and perhaps shifting depositor preferences in one of the world's most vibrant economies.

For foreign banks, which often operate with a leaner branch network compared to their domestic counterparts, attracting and retaining deposits is paramount for funding their lending activities and sustaining growth.

Several factors could be contributing to this deceleration. Firstly, the intensely competitive environment in the Indian banking sector sees public sector banks and agile private lenders actively vying for deposits, often through attractive interest rates and extensive customer outreach.

With the RBI maintaining a vigilant stance on inflation, and consequently, a watchful eye on interest rates, foreign banks may find it challenging to offer deposit rates that can consistently outcompete the larger domestic players.

Furthermore, the economic climate, while robust, presents its own set of nuances.

Corporate treasuries and individual savers might be re-evaluating their investment strategies, possibly favoring alternative avenues or longer-term instruments, which could impact short-to-medium term deposit inflows. Additionally, the regulatory landscape, designed to foster financial stability, may also influence how foreign banks structure their deposit mobilization efforts.

The implications of this slowdown are multi-faceted.

A reduced pace of deposit growth could constrain foreign banks' ability to expand their loan books, potentially impacting their market share and overall profitability in India. It may also necessitate a strategic re-evaluation of their funding models, possibly pushing them to explore other sources of capital or refine their deposit acquisition strategies to better resonate with Indian customers.

In a rapidly digitizing economy like India, the ability to innovate in banking services, offer seamless digital experiences, and build strong customer relationships becomes even more critical.

Foreign banks, despite their global expertise, must continually adapt to local market specificities to thrive. The 6.8 percent deposit growth figure, therefore, serves as a significant indicator, urging these institutions to recalibrate their approach to navigate India's dynamic banking terrain successfully.