With eye on FDs, SBI chief seeks tax parity on financial products

Mumbai: A day before the Union Budget, State Bank of India chairman CS Setty has sought a level playing field for tax treatment of all financial products, including fixed deposits. The chairman's comment came in the wake of bank deposits continuing to lag credit growth as retail savings continue to pour into mutual funds.

Responding to a question on his expectations, Setty said the general consensus in the financial sector is that fiscal prudence and fiscal consolidation will continue.

"As a banker, there should be a level playing field for financial instruments, but there are fiscal constraints. Globally, we do not see special treatment for bank deposits. Equity instruments also do not receive special treatment in many jurisdictions," Setty said.

The SBI chairman's views were echoed by SBI Research in a Jan 2026 report, which recommended aligning tax rates on deposit interest with capital gains to boost household savings in banks.

The Indian Banks' Association has been demanding tax benefits for fixed deposits for years. Currently, FDs of up to Rs 1.5 lakh are eligible for deduction under the old tax regime, which is no longer preferred by a vast majority of taxpayers. In recent years, investors have shifted toward mutual funds.

The ratio of mutual fund assets under management (AUM) to bank deposits has grown nearly three times, from 12.6% in 2015 to over 33.5% in 2025. Bank deposits grew nearly three times over the past decade, compared with more than seven times growth in mutual fund AUM.

Other bankers have also raised this issue amid deposit growth lagging credit demand, with savers shifting to equities for better post-tax returns, straining bank liquidity.

Last year, Uday Kotak, founder and non-executive director of Kotak Mahindra Bank, said, "India's saver turns investor. Post-Covid, mutual fund AUM (mainly equity) has doubled to 31% of bank deposits," reflecting a structural shift as savers seek capital market returns.

In Sept 2024, MV Rao, chairman of the Indian Banks' Association and Central Bank of India, called for govt intervention on "the shift of money into non-banking assets such as equities and mutual funds", warning of systemic risks if deposit outflows continue.