Safety in Small Finance FD Rates: To attract customers, small finance banks offer higher interest on fixed deposits (Small Finance Bank FD) than major banks. As of now, these banks are giving maximum interest of 9 percent per annum to general citizens and 9.50 percent per annum to senior citizens on FDs of different tenures. If compared with major banks, it is 1.5 to 2 percent more. But a question remains in the mind of investors whether it is safe to invest money in SFB as compared to big banks.
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Why do they pay more interest?
Despite being much smaller in base than major banks, SFBs give higher interest (FD Rates) on their deposits, hence the question arises as to why. Actually, the reason behind this is that they earn interest from loan business. They usually give loans to those people who are not able to get home loan or vehicle loan from major banks. To raise money for giving loan, they attract FD customers by paying higher interest. At the same time, they also charge more interest on the loan.
The thing to understand here is that major banks refuse to give loans to those people whom they feel do not have strong ability to repay the loan. But SFBs give loans to such people. Therefore there is also a risk of loan default. Therefore, there is some risk regarding the deposits of these banks. However, the ticket size of their loan is less, hence the risk also reduces.
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License is given by RBI
SFBs are licensed and regulated by the Reserve Bank of India. RBI itself issues guidelines from time to time for the functioning of SFBs and regularly monitors their operations. Central Bank regulations ensure that SFBs maintain adequate capital adequacy ratios while following appropriate risk management practices. Even after this, before making FD, you can study some things and check its security. To identify the risk, it is important to understand the structure of banks, their access to customers and finance.
Small Finance Bank: Best FD Rates
Unity Small Finance Bank: 9 percent per annum
Suryoday Small Finance Bank: 8.65 percent per annum
Shivalik Small Finance Bank: 8.55 percent per annum
Equitas Small Finance Bank: 8.50 percent per annum
Jana Small Finance Bank: 8.50 percent per annum
Utkarsh Small Finance Bank: 8.50 percent per annum
Ujjivan Small Finance Bank: 8.50 percent per annum
ESAF Small Finance Bank: 8.25 percent per annum
AU Small Finance Bank: 8.00 percent per annum
Fincare Small Finance Bank: 8.00 percent per annum
RBL Bank: 8.00 percent per annum
(Note: Here information about maximum interest rates on different tenures of banks is given. Most of these banks give 0.50 percent additional interest to senior citizens. In this context, the maximum rate is 9.50 percent.)
Fixed Income Fund: Is the income, profit and risk fixed in these schemes? Invest money after checking them.
Check bank rating
Often the FD schemes of Small Finance Bank are rated by credit rating agencies. Credit rating agencies like CRISIL, ICRA and CARE rate SFBs on the basis of their financial stability, asset quality, management efficiency and other parameters. High credit rating indicates that the financial condition is strong and the risk of returning the deposits of the depositors is very low. Whereas it is better to stay away from banks with bad ratings.
How much fund is safe?
Deposits up to Rs 5 lakh in a bank are insured. This amount is insured under the deposit insurance program of the Deposit Insurance and Credit Guarantee Corporation (DICGC). This guarantee is also available on deposits in Small Finance Bank. This means that if you have deposited your money in any form in a small finance bank, then the maximum deposit up to Rs 5 lakh will be safe and if the bank defaults due to any reason, you will get up to Rs 5 lakh. It is better that you do not deposit more than this amount in a single bank.
(Source: Bank Websites, Bank Bazaar, Paisa Bazaar)