State Bank of India (SBI) chairman CS Setty has called for a level playing field between bank deposits and equity investments on tax treatment calling for an end to special tax treatment to equity investments as the (equity) market is more mature (now).
Speaking to reporters on the sidelines of the bank's launch of a project to assess and finance new age infrastructure projects, Setty said that globally neither equity or bank deposits are given any special treatment.
"Globally also we have not seen anywhere where the bank deposits are given any special treatment, but at the same time equity instruments are also not given a special treatment in many jurisdictions.In an evolving equity environment, probably those benefits were justified. (But) now I think there should be a level playing field for the financial savings instruments," Setty said.
At present, returns on deposits attract taxation as per a taxpayer's tax slab which may go up to 30% while equity returns are taxed at 12.5% for long-term gains with a holding of more than a year above Rs 1.25 lakh. Equity investments sold within a year are taxed at a rate of 20% with a 0.1% Securities Transaction Tax (STT).
Bankers have been demanding an equal treatment with equity savings as deposit mobilisation has become more and more difficult because savers are looking for higher yields.
In 2023, the government brought debt mutual funds on par with fixed deposits (FDs) doing away the tax arbitrage. Both debt investments and fixed deposits are now taxed as per the investor's marginal income tax slab, without any indexation benefit which was a major tax advantage for debt funds, allowing a 3-year period to adjust for inflation.
Distinction between short-term and long-term capital gains for debt funds had also been removed with all gains are treated as short-term and taxed at the slab rate.
The Economic Survey released earlier this week also pointed towards the structural change in Indian household savings.
The share of deposits in financial savings having dropped to 35.2% in FY25 from 57.9% in FY12, though higher than the 31.95% reported in FY22.
"Equity investments, which were once ancillary to household balance sheets, have increasingly become a significant component of financial wealth, supported by broader participation and more diversified channels of access," the economic survey said.
Gross household financial savings increased from 2% in FY12 to over 15.2% in FY25, led by a steady rise in systematic investment plan (SIP) contributions, with average monthly SIP flows increasing seven times from under Rs 4,000 crore in FY17 to over Rs 28,000 crore in FY26 (April-November).
"The growing prevalence of systematic investments reflects a shift towards long-term and sustained household engagement with savings being channelled in a disciplined manner across market cycles... This pattern suggests portfolio diversification rather than displacement, with households adding equity exposure to their existing savings rather than substituting entirely away from traditional instruments," the survey said.
Last week a report by ratings agency Care said that deposits with scheduled commercial banks have grown at a compound annual growth rate of around 10.3% between FY20 and H1FY26, rising from Rs 140.3 lakh crore to over Rs 240 lakh crore, much lower than the 25% CAGR posted by mutual funds which are at Rs 80 lakh crore AUM at the end of December 2025.
The loss of deposits also means that banks will have to find new ways to finance long term projects.
Setty said banks have so far been able to build the project financing portfolio because we have very sticky deposits in terms of savings deposit. "But with the financialization of the household savings, we have to bring those financial institutions also to participate in this infrastructure projects or sunrise sectors (like renewables and green hydrogen)," he said.
Speaking to reporters on the sidelines of the bank's launch of a project to assess and finance new age infrastructure projects, Setty said that globally neither equity or bank deposits are given any special treatment.
"Globally also we have not seen anywhere where the bank deposits are given any special treatment, but at the same time equity instruments are also not given a special treatment in many jurisdictions.In an evolving equity environment, probably those benefits were justified. (But) now I think there should be a level playing field for the financial savings instruments," Setty said.
At present, returns on deposits attract taxation as per a taxpayer's tax slab which may go up to 30% while equity returns are taxed at 12.5% for long-term gains with a holding of more than a year above Rs 1.25 lakh. Equity investments sold within a year are taxed at a rate of 20% with a 0.1% Securities Transaction Tax (STT).
Bankers have been demanding an equal treatment with equity savings as deposit mobilisation has become more and more difficult because savers are looking for higher yields.
In 2023, the government brought debt mutual funds on par with fixed deposits (FDs) doing away the tax arbitrage. Both debt investments and fixed deposits are now taxed as per the investor's marginal income tax slab, without any indexation benefit which was a major tax advantage for debt funds, allowing a 3-year period to adjust for inflation.
Distinction between short-term and long-term capital gains for debt funds had also been removed with all gains are treated as short-term and taxed at the slab rate.
The Economic Survey released earlier this week also pointed towards the structural change in Indian household savings.
The share of deposits in financial savings having dropped to 35.2% in FY25 from 57.9% in FY12, though higher than the 31.95% reported in FY22.
"Equity investments, which were once ancillary to household balance sheets, have increasingly become a significant component of financial wealth, supported by broader participation and more diversified channels of access," the economic survey said.
Gross household financial savings increased from 2% in FY12 to over 15.2% in FY25, led by a steady rise in systematic investment plan (SIP) contributions, with average monthly SIP flows increasing seven times from under Rs 4,000 crore in FY17 to over Rs 28,000 crore in FY26 (April-November).
"The growing prevalence of systematic investments reflects a shift towards long-term and sustained household engagement with savings being channelled in a disciplined manner across market cycles... This pattern suggests portfolio diversification rather than displacement, with households adding equity exposure to their existing savings rather than substituting entirely away from traditional instruments," the survey said.
Last week a report by ratings agency Care said that deposits with scheduled commercial banks have grown at a compound annual growth rate of around 10.3% between FY20 and H1FY26, rising from Rs 140.3 lakh crore to over Rs 240 lakh crore, much lower than the 25% CAGR posted by mutual funds which are at Rs 80 lakh crore AUM at the end of December 2025.
The loss of deposits also means that banks will have to find new ways to finance long term projects.
Setty said banks have so far been able to build the project financing portfolio because we have very sticky deposits in terms of savings deposit. "But with the financialization of the household savings, we have to bring those financial institutions also to participate in this infrastructure projects or sunrise sectors (like renewables and green hydrogen)," he said.
