Adventure deposits: A banking idea whose time may have come

Depositors attracted by capital markets may be ready to bear some risk for larger interest earnings

- MADAN SABNAVIS

Consider these five seemingly unrelated though connected characteristics of our financial markets.

First, the debt market is one largely for higher rated companies. If the rating of a bond or debenture is not AA or AAA, it is hard to find investors. Second, those who cannot access the bond market can still borrow from banks (so we have financial inclusion). Third, almost all bank lending, except when it is specified as being unsecured, is backed by collateral; hence lower rated units can borrow on this strength. Fourth, banks also invest in securitized assets, where a pool of assets is segregated by seniority for sale to other investors; asset pooling is not new. Last, a green ecosystem has emerged where banks raise 'green deposits' for deployment in green lending, just like how green bonds enable the same.

Can all these characteristics be put together to create a new kind of deposit product that is guided by the market and addresses the needs of borrowers that lack good ratings? There does exist a market for 'junk bonds' or sub-investment grade debt instruments. This is not a market for 'losers,' but one that lets lower-rated companies raise funds from investors ready to accept higher risk for better returns. These bonds typically offer higher rates of interest. According to S&P, the trailing 12-month default rate for speculative-grade debt was about 4% for the past two years and averaged 4.8% as of August 2025. This is a higher return than what better rated bonds offer and seen as compensation enough for the risk taken.