The Hidden Risk Behind India’s 7.8% GDP Growth Story — And It’s Maybe Inside Your Bank

India's macro story is turning upbeat. On 1 October 2025 the Reserve Bank of India held the repo rate at 5.50% and raised its FY26 growth forecast to 6.8%, banking on domestic momentum as the economy grew 7.8% in the first quarter. Fiscal policy is aligned with this plan. The Union Budget 2025-26 lifted the income‑tax rebate so that no tax is payable on income up to Rs 12 lakh.

Finance Minister Nirmala Sitharaman said the change will boost household spending and savings. A "next‑generation" GST overhaul soon followed, simplifying rates to 5% and 18% and cutting levies on everyday goods and mid‑ticket purchases. Seen together, the central bank's pause and these tax changes show policymakers trying to keep money in consumers' pockets and reduce the cost of consumption even as public investment drives infrastructure.

Growth Faces Its Funding Wall

This strategy will falter if banks cannot fund credit cheaply. RBI figures show credit growth slowed to about 11% in FY25, half the 20.2% pace of FY24. Deposits expanded 10.6%, down from 13% the prior year.

"Worse, the mix has shifted toward high‑cost term deposits: private banks weighted‑average term‑deposit rate climbed from 4.5% in 2022 to 6.6% by March 2024, and 82% of incremental deposits in early FY25 were term deposits. Term deposits grew nearly three times faster than savings deposits, raising their share above 62%," said Vibhore Goyal, Founder, OneBanc Technologies Pvt. Ltd.

Profitability Is Holding Up, For Now

Banks cut term‑deposit rates by roughly one percentage point between February and August 2025, yet lending rates fell by only about half that, preserving margins but discouraging low‑cost balances. The result: lenders lean on higher‑yielding unsecured credit, and the Financial Stability Report finds about half of new retail NPAs came from unsecured loans.

Technology: The Invisible Balance-Sheet

Reliability and cost efficiency are the hidden levers. The RBI's ombudsman received 934,355 complaints in FY24: mobile and electronic banking issues accounted for nearly one in five, a 32% jump. Payment infrastructure struggled too: UPI saw 95 minutes of unscheduled downtime in March 2025 and a success‑rate dip below 80% during a multi‑hour window.

"When millions transact every hour, even brief outages erode trust and push customers toward digital‑only brokers and wallets. At the same time, branch or call‑centre interactions cost around Rs 30 to resolve versus Rs 1.25 for an in‑app workflow; legacy systems and multi‑step forms negate this advantage. Without modernising architectures and re‑engineering processes, banks must pay more for deposits and cannot pass savings on to customers," added Vibhore Goyal, Founder, OneBanc Technologies Pvt. Ltd.

Banks can learn from consumer‑tech leaders. E‑commerce and mobility platforms run actively. Active architectures, micro‑services and real‑time telemetry, with graceful failover. Many banks still rely on batch systems and token logins. Updating cores to modular systems that allow continuous deployment, enforcing disciplined API rate limits and building self‑healing features will reduce downtime and costs.

"This also means reskilling staff and moving away from cost‑plus outsourcing models that emphasise ticket closure over user experience. Regulators are already providing a glide path: Basel III reforms and expected‑credit‑loss provisioning phases give time to invest in the pipes," as per Vibhore Goyal.

Capital allocation must evolve too. Large-value deposits (Rs 1 crore and above) already make up a big chunk of term deposits, many carrying rates above 7%. That dependence is neither cheap nor sticky. Banks can instead price reliability, offer slightly better rates or fee waivers for customers who commit to digital‑only service and longer tenures, and reinvest the savings from lower servicing costs into uptime.

"Rather than chasing unsecured consumer loans, cross‑sell insurance and investment products to deepen relationships and retain balances. If banks modernise their technology stack and adopt consumer‑tech discipline, low‑cost deposits will return, cost‑to‑serve will shrink, and credit growth can recover without courting sub‑prime risk," Vibhore Goyal further commented.

Building Sticky Deposits In A Digital World

India's economic movie opens on a high note: resilient growth, accommodative monetary policy and tax reforms that put money back into consumers' hands. The threat is not from competing fintechs but from irrelevance through inconvenience. The plot twist is that technology and trust are the true levers. By fixing the pipes and pricing convenience, banks can win back deposits and support the domestic engine policymakers are betting on.

Disclaimer

The views and recommendations expressed are solely those of the individual analysts or entities and do not reflect the views of Goodreturns.in or Greynium Information Technologies Private Limited (together referred to as "we"). We do not guarantee, endorse or take responsibility for the accuracy, completeness or reliability of any content, nor do we provide any investment advice or solicit the purchase or sale of securities. All information is provided for informational and educational purposes only and should be independently verified from licensed financial advisors before making any investment decisions.