Customers are now able to earn fixed deposit rates of up to 9% for the first time in more than three years. Small finance banks (SFBs) are giving more than 8% on special deposit programmes, which have a duration of about two years, while large commercial banks have been yielding 7.5-8%. The increase in rates is the result of the banking system's excess liquidity becoming scarce.
For 1,001-day deposits, Unity Small Finance Bank (SFB) is providing 9% for the general public and 9. 5% for elderly citizens. For deposits for 999 days, Suryoday Small Finance Bank is offering 8.51%. Interest rates from 8% to 8.5% are offered by several SFBs.
The RBI had started its rate hikes in May 2022, but the transmission to customers was largely on the lending side with deposits being slow to move. This was because of the surplus liquidity in the system, due to which banks did not find the need to mobilise deposits.
One reason the SFBs can offer higher returns on their deposits is that most of these banks lend to the microfinance segment, where the rate of interest is very high. Also, these banks do not have the same reach as regular commercial banks and have to offer higher rates to attract depositors.