In the past two months, the RBI has hiked interest rates once by 40 bps and then by 50 bps. This suggests a rising interest rate cycle may be on the cards. In such a scenario, investing in bank fixed deposits (FD) seems a rational choice.

Most of the public sector banks are offering interest rates between 5 per cent to 5.5 per cent and private banks are offering rates between 5 to 6.5 per cent for one-to-two-year period. There is an option to invest for a period less than one year, but the rates are lower on those deposits. In contrast, small finance banks are offering around 6.5 per cent on deposits of one-to-two-year tenure. Here is a review of Equitas SFB deposits.

While the bank was in news recently due the resignation of its MD., looking at its financials and diverse loan book there is nothing which suggests any detrimental effect.

Attractive rates

One can consider Equitas Small Finance Bank FD which is offering 6.6 per cent for one year to eighteen months. Senior citizens can avail additional 0.5 per cent on these rates. For a tenure of two years and five months the rate is 6.90 per cent. This makes it better than its peers and scheduled commercial banks (both public and private).

Given the current scenario it would be better for investors to go for a shorter tenure. At present we are at the start of a rising interest cycle, and one should position themselves smartly to benefit from the opportunities as and when they arise and avoid being locked into long tenure FDs. The bank charges a premature withdrawal penalty of 1 per cent (excluding senior citizens). However, it is not applicable for the deposits which have stayed invested for 180 days (6 months) or more and are not bulk deposits. Therefore, it is advisable to make deposit for the one year to eighteen months tenure. Small finance banks are covered by DICGC (Deposit Insurance and credit guarantee corporation) and there is a deposit insurance up to ₹5 lakh, which is not available for NBFCs.

How to start deposit

There is an option to open FDs online through the ‘Selfe FD’ route. Here, the depositor can have a FD without a savings account in Equitas SFB. After maturity, the proceeds will be transferred to a bank account of your choice. Note the maximum amount of such a deposit can be ₹ 90,000 and for one year period only, which means an interest of 6.6 per cent for regular citizens and 6.77 per cent for senior citizens.

To deposit higher amounts, the customer would have to open a savings account with the bankLonger tenures can also be availed. The bank also provides doorstep banking services such as collection of cheques and opening savings bank account.

Financials

Equitas Small finance Bank has healthy financials in addition to the good rates it offers. The net interest income for March 2022 stood at ₹552 crore a 23 per cent rise YoY. The bank has a well-diversified loan portfolio with 65 per cent coming from microfinance, small business and home loans and another 24 per cent from vehicle finance as on March 2022.

The bank has been able to gain decent acceptance from retail customers, the CASA grew 76 per cent YoY to ₹9,855 crore and the CASA ratio stood at 52.01 per cent as at March 2022 which is favourable for the bank. The cost of funds improved to 6.20 per cent from 7.20 per cent in March 2021. As of March 31, 2022, total CRAR (Capital to Risk Weighted Assets Ratio) stood at 25.16 per cent, Tier I capital at 24.53 per cent and Tier II capital at 0.63 per cent.

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