Fixed deposit rates above 8%: Several small finance banks (SFBs) have increased their fixed deposit rates to over 8% for a two-year tenure as they compete with larger banks like State Bank of India and HDFC Bank to attract funds from regular savers in a market where alternative investment options have grown in recent years.
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SFBs are providing 100-125 basis points more on deposits compared to a year ago, which is also about 120 basis points higher than what major banks such as SBI and HDFC Bank are offering.
According to an ET report, Utkarsh SFB and Suryoday SFB are offering 8.5% on two-three year tenures, while Equitas SFB is offering 8.5% on a tenure of two years to less than three years. Unity SFB is offering 9% on 1,001 days.
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In comparison, SBI’s highest rate is 7.25% for 444 days, and HDFC Bank’s highest rate is 7.4%, with an additional 50 bps for senior citizens.
Some finance companies are also competing with banks by offering above 8% interest on fixed deposits. Manipal Housing Finance Syndicate Ltd is offering 8.25% for one to three-year deposits, while Bajaj Finance is offering 8.65% for 42 months.
Kanika Pasricha, chief economic advisor at Union Bank of India, was quoted as saying, “Deposits are still lagging on an incremental basis, and this is a cause for concern. Therefore, since July, the fight has intensified among banks to raise deposit rates. With deposits lagging, borrowings like infrastructure bonds have suddenly picked up.”
India’s financial market is imbalanced due to the opposing trends in the demand for and availability of funds, which an economist attributed to the RBI’s strict monetary policy aimed at reducing inflation to the legally required 4%.
Moreover, the attractive returns offered by growth assets have contributed to the democratization of India’s equity culture, diverting funds from traditional bank deposits to pooled assets like various mutual funds and exchange-traded funds.
