These small finance banks have started to offer high-interest rates of 9% and above returns on FDs to senior citizens.
To open a fixed deposit account, the foremost element a depositor looks for is interest rates. For the same, the customer analyses the interest rates of various banks and chooses the one that offers the highest interest rate. But conventionally, when it comes to fixed deposits, depositors find post offices more reliable than banks. Sometimes to invest in the post office, customers decline the high-interest rates of banks because of reliability and trust in post office fixed deposit accounts.
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Earlier, the market had two players — Banks and post offices. But now another element has achieved a foothold which is small finance banks. These small finance banks are financial institutions that offer banking services to the unserved and unbanked regions of the country. They are registered under the Companies Act 2013 as a public entity. The main idea for the introduction of these small finance banks was to have an alternative player in the market and provide basic financial services. For example Au Small Finance Bank Ltd. and Capital Small Finance Bank Ltd.
Some small finance banks have started offering high-interest rates of up to 9% and above on FDs to senior citizens. Importantly, they have set their fixed deposit interest rates according to the needs of the consumers. This has made the depositors think and invest their hard-earned income in small finance banks. Other than interest rates, the equivalent insurance coverage of Rs 5 lakh in banks, post offices, and small finance banks have further attracted depositors.
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The insurance coverage for deposits has been extended by the government by five times, to Rs 5 lakh, in 2020. On February 4, 2020, the increased deposit insurance cover of Rs. 5 lakh went into effect. Later, the DICGC Act was further amended, and now the Corporation is required to offer depositors of banks that the Reserve Bank has placed under AID insurance coverage of up to Rs 5 lakh.
In contrast to the international norm of 80%, according to the DICGC, the number of fully safeguarded accounts (256.7 crore) by the end of March 2022 represented 97.9% of all accounts (262.2 crore) in the banking system. Commercial banks contributed 93.6 percent of the entire premium received by the DICGC during 2021–2022, which came to Rs 19,491 crore.
