MUMBAI: Customers can now take advantage of fixed deposit rates as high as 9% for the first time in more than three years. Small finance banks (SFBs) are offering more than 8% on special deposit schemes with a two-year tenure, whereas large commercial banks have offered 7.5-8%. Rates have been raised as a result of the banking system's excess liquidity running out.
On 1,001-day deposits, Unity Small Finance Bank (SFB) is offering 9% for the general public and 9.5% for seniors. On 999-day deposits, Suryoday Small Finance Bank offers 8.51 percent. Interest rates on other SFBs range from 8% to 8.25%.
The RBI had begun its rate climbs in May 2022, yet the transmission to clients was to a great extent on the loaning side with stores being delayed to move. Banks did not feel the need to raise deposits as a result of the excess liquidity in the system.
The majority of these banks lend to the microfinance sector, where the interest rate is extremely high, which is one reason why the SFBs can offer higher returns on their deposits. Additionally, these banks must offer higher rates to attract depositors because they do not have the same reach as conventional commercial banks.
The higher credit risk of SFB loans is reflected in their higher lending rates. The fact that deposits up to Rs 5 lakh are guaranteed by deposit insurance is a comfort for depositors.
Bonds are now earning even higher returns for institutional investors. With a 10-year call option, SBI is offering 8.25 percent on its additional tier-1 (AT1) bonds. State development loans offered by the RBI without credit risk carry interest rates as high as 7.7%. Even short-term 364-day government treasury bills have seen interest rise to 7.5% as a result of the shortage of liquidity.
