Economy

Small finance banks up the ante to grab deposits

Small finance banks are adopting an aggressive strategy to garner savings deposits by offering interest rates higher than that offered by full-service banks.

While most full-service banks offer 4 per cent on savings bank deposits, small finance banks are offering or planning to offer between 5 and 7 per cent on such deposits.

Equitas Small Finance Bank, which started its operations in September, is offering a 6 per cent interest rate for deposits up to Rs.1 lakh and 6.5 per cent for deposits of above Rs.1 lakh and up to Rs.50 lakh.

Suryoday, another entity which plans to start a small finance bank by year end, said it could offer about 7 per cent on savings bank deposits.

“As a micro finance institution, our cost of funds is between 11 and 12 per cent,” R. Baskar Babu, chief executive officer of Suryoday, said in an interview. “When we become a bank and offer 7 per cent on savings bank deposit, (even then) our costs will come down.”

Final approval

The micro finance institution is among three entities to have received the final approval from RBI so far to start small bank operations.

Last year, Reserve Bank of India (RBI) gave in-principle approval to 10 entities for starting small finance bank operations. Most players that have received in-principle approvals are micro-finance institutions.

Utkarsh, the Varanasi-based micro finance institution, which had received in-principle approval from Reserve Bank of India (RBI) last year to start a small finance bank, is also planning to offer higher interest rates than do existing universal banks.

“We can certainly offer 100 bps more than the existing banks, that is, 5 per cent on savings deposits,” said Govind Singh, managing director and chief executive officer of Uttkarsh, which is planning start operations in January 2017.

100 bps more

A.S.R. Krishna, chief operating officer of Guwahati-based micro lender RGVN, which has received a small finance bank licence, also sees merit in offering at least 100 basis points more for savings deposit than do existing banks. The other small finance bank (apart from Equitas) which has started operations is Jalandhar-based Capital Small Finance bank. The bank’s capital’s savings account deposit rate is, however, in line with universal banks, that is 4 per cent.


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Printable version | Nov 25, 2021 7:59:50 PM | https://www.thehindu.com/business/Economy/Small-finance-banks-up-the-ante-to-grab-deposits/article16074892.ece

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