A safe op­tion for higher re­turns

Small fi­nance banks of­fer far more at­trac­tive rates than tra­di­tional banks

The Hindu Business Line - - YOUR MONEY - RAD­HIKA MERWIN Fea­tures

De­posit rates have been mov­ing up over the past year. But rates of­fered by most tra­di­tional banks are still not as at­trac­tive as those of­fered by NBFCs (non­bank fi­nan­cial com­pa­nies) or by se­lect non-con­vert­ible deben­tures (NCDs).

But these op­tions carry a higher risk than good old bank de­posits.

The on­go­ing tur­moil ow­ing to the IL&FS cri­sis and the re­cent con­cerns over De­wan Hous­ing Fi­nance (DHFL) have only left in­vestors in the fixed-in­come cat­e­gory more anx­ious.

Small fi­nance banks (SFBs) that of­fer far more at­trac­tive rates than tra­di­tional banks, of­fer just the so­lu­tion. De­posits in these new-for­mat banks are also as safe as those in the other banks.

Aside from de­posits in all pub­lic sec­tor, pri­vate, lo­cal area and re­gional ru­ral banks, SFBs and pay­ments banks, too, are now cov­ered by the De­posit In­sur­ance and Credit Guar­an­tee Corporation of In­dia (DICGC). Each de­pos­i­tor is in­sured up to ₹1 lakh for both prin­ci­pal and in­ter­est.

Sury­o­day Small Fi­nance Bank, which of­fers 9 per cent on de­posits with a spe­cial ten­ure of 950 days and 8.75 per cent on two to three-year de­posits, is a good op­tion for in­vestors.

At­trac­tive op­tion

The RBI in its re­cent pol­icy, cut its key pol­icy rate in a sur­prise move. While this may not im­me­di­ately trig­ger across-the-board cuts in de­posit rates, it has opened up the pos­si­bil­ity of de­posit rates mod­er­at­ing in the com­ing months.

For in­vestors, thus, lock­ing into a two to three-year de­posit makes sense as it mit­i­gates the un­cer­tainty over rein­vest­ment risk in the near term; yet the ten­ure is short enough to cash in on any rate hikes two years or so hence.

The best rates of­fered by most tra­di­tional banks in the two to three-year ten­ure hover in the 7.5-7.75 per cent range (8-8.05 per cent by a hand­ful). As against this, SFBs of­fer far higher rates as rak­ing in de­posits is im­per­a­tive for them to grow and im­prove prof­itabil­ity. In the two to three­year bucket, many SFBs of­fer 8.5-9 per cent, nearly one per­cent­age point more than most con­ven­tional banks.

Sury­o­day Small Fi­nance Bank of­fers an at­trac­tive 9 per cent for a 950-day de­posit. If you are will­ing to park away some money, lock­ing into a spe­cific ten­ure de­posit can work well. If you need more flex­i­bil­ity, even the bank’s two to three-year de­posit that of­fers 8.75 per cent is a good deal.

The min­i­mum amount for an FD in the bank is ₹1,000. If reg­u­lar pay­out is not your pri­or­ity, opt for the cu­mu­la­tive op­tion to make the most of com­pound­ing.

On pre­ma­ture with­drawal, the rate will be 1 per cent less than the one nor­mally ap­pli­ca­ble.

How­ever, there could be some op­er­a­tional hitches, given the lim­ited net­work of SFBs. Sury­o­day has bank branches in five States — Ma­ha­rash­tra, Gu­jarat, Mad­hya Pradesh, Tamil Nadu and Odisha — and Puducherry. In these States and Union Ter­ri­tory (in most of the cities) cus­tomers can call for door-de­liv­ery ser­vices, where a per­son comes and col­lects re­quired doc­u­ments to help open an FD.

About the com­pany

Com­menc­ing bank­ing op­er­a­tions in Jan­uary 2017, Sury­o­day Small Fi­nance Bank faced a rise in delin­quen­cies post-de­mon­eti­sa­tion in FY17 and FY18.

This im­pacted the bank’s prof­itabil­ity in the two fis­cals. How­ever, the delin­quen­cies for loans dis­bursed from Jan­uary 2017 has fallen sub­stan­tially. Af­ter peak­ing at 6 per cent in FY17, GNPAs have come down to 3 per cent lev­els as of Septem­ber 2018.

Loan growth, too, has shown a strong come­back at 83 per cent in FY18. As of FY18, the bank has gar­nered over ₹800 crore of de­posits, of which cur­rent and sav­ings ac­count de­posits con­sti­tute 11 per cent. 8.75% on two to three-year de­posit

Min­i­mum in­vest­ment of ₹1,000


9% on 950-day de­posit

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