Following the repo rate cuts by the RBI, banks have slashed deposit rates by up to 165 basis points (bps) since the start of the year.
Even small finance banks, which lure depositors with comparatively higher rates, have lowered interest rates on deposits by more than 100 bps (year-to-date).
With rates at a multi-year low now, locking deposits in long tenures will mean missing out on higher returns when the rate cycle begins to move up. A one-year timeframe is ideal as this will give the opportunity to reinvest at better rates later.
After the latest revision of rates, done in June 2020, Equitas Small Finance Bank’s (SFB) rates are better than that of its peers. For deposits of one-year tenure, Equitas SFB offers 7.1 per cent interest per annum. Senior citizens get an extra 0.60 percentage points. The minimum deposit is stipulated at ₹5,000. Investors can choose the cumulative option.
For a similar tenure, public sector banks offer interests of 4.9-5.55 per cent, while private banks offer up to 7 per cent.
For a similar tenure, deposits rates of other small finance banks (barring Fincare Small Finance Bank), after their recent revisions, are also lower than Equitas SFB’s rates.
FDs with banks (including those with SFBs) are covered under the deposit insurance offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to ₹5 lakh per bank.
Open FD online
Depositors who wish to stay home can apply online, using the Selfe deposit option (on the bank’s website). Customers can open fixed deposits (FDs) online for a tenure of up to one year only. Also, the maximum amount of FD that can be opened online is capped at ₹90,000. For opening a deposit with a higher tenure or amount, customers will have to personally contact the bank. In select regions, doorstep banking facility is available to open an FD.
The bank also permits partial or full premature withdrawals of the FD, but only after 180 days since the date of opening the deposit.
For deposits with effective tenure shorter than 180 days, a penalty of 1 per cent shall apply on premature withdrawal.
However, premature withdrawals are not permitted if the customer opts for monthly interest payouts.
About the company
Equitas Small Finance Bank, previously Equitas Finance, began operations in September 2016. The bank has about 854 outlets across the country, with vast presence in Tamil Nadu (328 banking outlets).
Tamil Nadu also accounts for about 61.9 per cent of its outstanding loan book as on June 30, 2020.
The bank is currently into micro finance, small business loans (including housing and agricultural loans) and vehicle finance. It also lends to MSEs and corporates.
As on June 30 the bank had a loan book of ₹15,573 crore, with gross NPA at 2.68 per cent. The bank’s capital adequacy ratios are well above the minimum regulatory requirement — Total CRAR and Tier-I CRAR at 21.59 per cent and 20.61 per cent, respectively.
In the wake of the pandemic, small finance banks have faced severe anomalies in their collections, predominantly those with higher exposure to micro finance.
That apart, the moratorium on loans also hints at the possibility of bad loans inching up in the coming quarters.
Equitas SFB also saw its collections efficiency drop to 49 per cent in June 2020, from 78 per cent in March 2020. Also, about 51 per cent of the bank’s customers (by value) had opted for the moratorium, as of June quarter end.
That said, according to its recent exchange filing, the bank’s collection efficiency improved to over 80 per cent in August 2020, thanks to the bank’s diversified loan book — micro finance only constitutes about 23 per cent of the loan book currently.
Also, the loan book under moratorium is only 35 per cent of gross advances at the end of August 2020.
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