Unity Small Finance Bank (SFB) is offering 9% for general public and 9.5% for senior citizens for 1,001-day deposits. Suryoday Small Finance Bank Offers 8.51% on 999-day deposits. Other SFBs are offering interest rates between 8% and 8.25%.
reserve Bank of India It had started raising its rates in May 2022, but the transmission to customers was largely towards lending, with deposits coming in at a slow pace. This was due to surplus liquidity in the system, which did not require banks to raise deposits.
One of the reasons SFBs offer higher returns on their deposits is that most of these banks lend to the microfinance segment, where interest rates are very high. Also, these banks do not have the same reach as regular commercial banks and have to offer higher rates to attract depositors.
The high lending rates of SFBs reflect the high credit risk in loans to this segment. For depositors, a comfort factor is the fact that deposits up to Rs 5 lakh are guaranteed due to deposit insurance.
Institutional investors are getting even higher returns on their bonds. SBI is offering 8.25% on its Additional Tier-1 (AT1) bonds with 10-year call option. Interest on state development loans sold by the Reserve Bank of India, which are free of credit risk, is as high as 7.7%. In view of the lack of liquidity, interest on 364 days short term government Treasure Bills have gone up by 7.5%.