Why a Bank’s Deposits Matter More Than They Look

Think about two people with money in the same bank.

One receives a salary there, pays bills from the account and keeps a balance for everyday spending. The other opens a fixed deposit after comparing rates, ready to move the money when a better offer appears.

Both add to the bank’s deposits. But they may bring different interest costs, servicing needs and patterns of withdrawal. The amount tells us how much funding the bank has. It does not tell us everything about that funding.

Bank results draw attention to loan growth and bad loans, for understandable reasons. Deposits deserve a closer look too: they help determine what it costs to support those loans and how dependable that funding is.

Your asset is the bank’s liability

The money in your account is an asset to you. To the bank, it is a liability: money it owes you. Loans and investments sit on the other side of its balance sheet, alongside the income they can generate.

A bank earns interest on its assets and pays interest on deposits and other borrowings. The difference is net interest income, before operating expenses, credit losses and tax. Fees and other income also contribute to earnings.

There is an important wrinkle. As the Bank of England explains, commercial-bank lending can itself create deposits. Banking is not simply a conveyor belt carrying one saver’s money to one borrower. Banks still have to manage funding, payment settlement, liquidity and capital. A durable deposit base matters to the economics of maintaining that balance sheet.

What kind of deposits are growing?

The usual starting point is CASA: current accounts and savings accounts. These generally carry lower interest costs than term deposits. Current accounts typically pay no interest; savings accounts do. Grouping them together does not make all CASA funding free.

Term deposits commit money for an agreed period and rate, subject to the account’s terms. They can provide useful funding certainty, while often costing more in interest. A low interest bill and a stable funding base are related questions, not identical ones.

HDFC Bank’s business update dated 4 October 2026 offers a timely example. Its period-end deposits grew 18.8% year on year, but the mix changed:

CASA grew in rupees while falling as a share of the total. Time deposits grew faster. That distinction disappears if we read only the headline.

It does not establish that the bank’s overall funding cost rose. Rates, maturities and other funding also matter. Nor is this update a September-quarter earnings release. It gives us a funding question to take into the results, not a margin conclusion.

The same deposit book can produce a different interest bill

To isolate the mechanism, imagine ₹100 crore of average deposits. Of that, ₹20 crore sits in current accounts at 0%, ₹20 crore in savings at 3%, and ₹60 crore in term deposits at 6%.

The annual deposit interest bill is ₹4.20 crore. Alongside it, assume a separate ₹100 crore interest-earning asset pool yields 8%, producing ₹8 crore of interest income. Subtract the deposit interest and ₹3.80 crore remains.

These are fictional, simplified pools—not a complete bank balance sheet. Try changing the assumptions:

FOLLOW THE FUNDING COST

Same size. Different interest bill.

Start with ₹100 crore of average deposits and a separate ₹100 crore interest-earning asset pool. CASA is half current accounts at 0%, half savings at 3%. All rates are fictional.

CASA share 40%

20%60%

Term deposit rate 6.0%

4%8%

Asset yield 8.0%

6%10%

Starting mixMore CASAAssets reprice first

Annual deposit interest

₹4.20crore · 4.20% average cost

Net interest in this example

₹3.80crore · before operating costs, credit losses and tax

₹8.00 crore of interest income − ₹4.20 crore of deposit interest = ₹3.80 crore.

Follow the interest calculation

Current accounts: ₹20 crore × 0% = ₹0.00 crore. Savings: ₹20 crore × 3% = ₹0.60 crore. Term deposits: ₹60 crore × 6.0% = ₹3.60 crore. Asset income: ₹100 crore × 8.0% = ₹8.00 crore. Balances and rates are held constant for one year.

Choose “More CASA.” The deposit amount and asset income stay unchanged. Moving the CASA share from 40% to 60% lowers annual deposit interest to ₹3.30 crore, lifting net interest in this example to ₹4.70 crore.

Now choose “Assets reprice first.” The asset yield falls from 8% to 7%, while deposit rates hold. Net interest falls to ₹2.80 crore. The bank has not lost a deposit or shrunk the asset pool; the timing of rate changes has altered the earnings arithmetic.

In practice, attracting and retaining these balances costs money. Branches, staff, technology and customer service do not become free because an account pays little interest. The example isolates interest costs; it does not calculate profit.

Lower rates can take time to help

A floating-rate loan can reset before an existing fixed deposit matures. If asset yields fall first, interest income may decline while part of the deposit bill remains locked in. Later, deposits can renew at lower rates. How the two sides move depends on the contracts and mix.

HDFC Bank describes this timing issue in its FY2025–26 annual report, printed page 14. It says assets repriced faster than deposits following cumulative repo-rate cuts of 1.25 percentage points between February and December 2025, affecting net interest margin. For FY2026, it reported NIM of 3.34% as a percentage of average assets.

That denominator matters. Reported NIM is net interest income divided by an average asset base, with the precise definition depending on the disclosure. It is not simply a quoted loan rate minus a fixed-deposit rate. The two equal-sized pools above demonstrate a mechanism, not HDFC Bank’s reported margin.

A customer relationship can be part of the advantage

An account used for salary receipts, supplier payments or everyday transactions gives a customer reasons to stay beyond the interest rate. Those relationships can support recurring balances and opportunities to provide other services.

But “sticky” should be an observation supported by behaviour, not a flattering label. Transaction balances can leave quickly. A large corporate depositor can create concentration risk. Even a familiar retail customer can transfer funds when rates or service disappoint.

Term deposits have their own trade-off: they may offer greater contractual visibility, yet renewals can be sensitive to competitors’ rates. The useful questions are who holds the deposits, why they hold them, and when the money can move.

What I would check in the next results

Four checks make the deposit number more useful:

1. Average balances as well as closing balances. A quarter-end snapshot can differ from the funding available through the quarter. Interest earnings and costs accrue over time.
2. Mix alongside actual cost. A falling CASA share raises a question. Reported deposit or funding costs help answer it.
3. Repricing on both sides. Read asset yields, deposit rates and NIM together, using consistent definitions and periods.
4. Stability and concentration. Consider customer types, large balances and maturities, while acknowledging what the bank has not disclosed.

None of this makes loan quality less important. Cheap funding cannot rescue poor lending. A bank still needs to price risk sensibly, control losses and earn enough to cover the infrastructure supporting its customers.

Deposits are worth studying because two banks can report similar growth and face quite different economics underneath. One may be building useful, lasting relationships. Another may be paying more to keep money that will move at renewal.

The deposit total is the first number to read. The next question is what keeps it there—and what the bank pays for it.