Small Finance Banks Raise Fixed Deposit Rates to Compete SBI and HDFC

In a bid to attract depositors amid rising competition from large banks and alternative investment options, several small finance banks (SFBs) have increased their fixed deposit interest rates to over 8% for a two-year tenure.

These SFBs are offering significantly higher returns compared to a year ago, surpassing the rates offered by major banks like State Bank of India and HDFC Bank. For instance, Utkarsh SFB and Suryoday SFB are providing 8.5% interest on two- to three-year tenures, while Equitas SFB offers 8.5% for two to less than three years. Unity SFB is even offering a higher rate of 9% for a 1,001-day tenure.

In contrast, SBI’s highest rate is 7.25% for 444 days, and HDFC Bank’s is 7.4%. Both banks offer an additional 0.5% to senior citizens.

“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,” said Kanika Pasricha, chief economic advisor at Union Bank of India. “With deposits lagging, borrowings like infrastructure bonds have suddenly picked up.”

The competitive landscape is intensified by the Reserve Bank of India’s tight monetary policy, aimed at reducing inflation to 4%. This has led to a mismatch between the demand for and availability of funds in the financial market. Moreover, the growing popularity of equity investments, driven by robust returns, has diverted funds away from traditional bank deposits towards mutual funds and exchange-traded funds.

To further compete, some finance companies are also offering interest rates above 8% on fixed deposits. Manipal Housing Finance Syndicate Ltd provides 8.25% for one to three years, while Bajaj Finance offers 8.65% for 42 months.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.