Deposits are flowing out of China's major state-owned banks as high inflation and low interest rates prompt savers to seek better returns in the private lending market, state media said Thursday.

Outstanding deposits at the four biggest banks -- Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China -- fell 420 billion yuan ($65.7 billion) in the first 15 days of this month, the China Securities Journal said, citing unnamed sources.

The banks were not immediately available for comment when contacted by AFP.

Much of the funds likely flowed into the private lending market, which offers borrowing rates around 10 times higher than the official deposit rates and has become increasingly popular as authorities tighten restrictions on bank lending, the report said.

Inflation has been hovering above six percent for months, nearly double the official benchmark one-year deposit rate of 3.5 percent, meaning savers have been losing money by parking their cash in the country's banks.

The sharp fall in deposits has severely restricted the amount of money banks can lend, the report said, making it even more difficult for privately owned small and medium-sized companies to borrow.

Smaller businesses have already been hit hard by government efforts to rein in inflation, which include forcing banks to set aside more money in reserve and hiking interest rates five times since October last year.

The booming private financing market has fuelled concerns over the potential for an explosion in defaults, which could hurt the country's financial system and social stability, a commentary in the Shanghai Securities News said.

"Once companies fail to pay pack their loans due to the heavy pressure of high interest rates, large portions of private funds will be totally lost," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, a government think tank.

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