Tax relief to drive ₹45,000 crore additional bank deposits inflows, boost lending in FY26, says DFS Secretary Nagaraju
The Budget proposal to raise the income tax exemption limit to ₹12 lakh for middle-class taxpayers, along with an increase in the TDS threshold on fixed deposit interest, is expected to boost bank deposits by ₹40,000-45,000 crore in the next fiscal, Financial Services Secretary M Nagaraju said on Monday.
This anticipated surge in deposits will enhance banking system liquidity and reduce reliance on high-cost borrowings, he said.
This would also enable banks to lend more, he noted. “Banks are very happy with the Budget. All CEOs of banks are now expecting higher deposits growth because of measures announced in the Budget,” Nagaraju said.
“If deposits grow, especially in fixed deposits, banks will be able to lend more. With these measures, banks are expecting higher credit growth,” he added.
Nagaraju also asserted that currently there is no slowdown in bank deposits growth, which are growing at about 15 per cent and noted that CASA deposits are at about 40 per cent.
“Banks will come up with newer ways of finding deposits or other finances to fuel their growth,” he noted.
Budget Support
The Budget has proposed an increase in the tax deduction at source (TDS) threshold on interest earned from fixed deposits for general (non-senior) citizens from the current ₹40,000 to ₹50,000 per financial year. The TDS threshold for fixed deposit interest income by senior citizens will go up from ₹50,000 to ₹1 lakh from FY2025-26. Also, the income tax exemption limit has been increased to ₹12 lakh.
The Finance Ministry has made calculations with regard to increase in deposits.
“We have done rough calculations. Three assumptions we have made — expected increase in senior citizens deposits; expected increase in non senior citizens deposits; and the announcement of exemption limit till ₹12 lakhs. Based on current assumptions and calculations, we expect additional ₹ 15,000 crore deposits inflow into banks on account of changes in TDS threshold for senior citizens,” Nagaraju said.
Senior citizens with deposit base of ₹34.3 lakh crore as of 2023 constitute substantiate part of total banking system deposits. TDS has been one of the reasons some of the senior citizens don’t keep funds in banks.
“Since TDS relaxation improves deposit behaviour we are expecting little more than ₹ 15,000 crore of additional deposit inflow from senior citizens,” Nagaraju said. In the case of non-senior citizens, the TDS threshold relaxation on fixed deposits is expected to result in additional deposit flow of ₹ 7,000 crore, he said.
“For the ₹12 lakh IT exemption, there will be ₹ 1 lakh crore revenue foregone out of which we expect at least ₹20,000 crore to be deposited into the bank. This is because tax relief is sort of an additional income and everybody will not immediately spend that in one go,” Nagaraju added.
“Together we expect anywhere between ₹40,000 and ₹45,000 crore additional bank deposits to flow into the banking system in 2025-26,” he added.
Tight liquidity
Banks have been faced with a liquidity deficit in the system. RBI had, in end-January, announced several liquidity support measures that are likely to inject ₹1.5 lakh crore into the banking system in next couple of months. This central bank support is only likely to partially offset the liquidity squeeze seen in recent months with the deficit widening sharply to ₹3 lakh crore in recent sessions. In fact, the foreign banks and brokerages expect the RBI to go in for further liquidity measures in the coming days.
