Before you get lured by these high interest rates, keep these factors in mind:
A small finance bank from lending perspective is placed between Scheduled Commercial Banks and NBFCs. They focus on underserved sectors and small ticket loans compared to main stream banks financing lesser riskier assets. Because of this business model, they offer better savings rates as their cost of borrowing is higher than mainstream banks.
Here are some key points to consider when making your decision about where to park your funds:
Who is more credible? Public banks generally have a long-established presence and a solid reputation. They are often considered more reliable due to their extensive network, government backing, and adherence to strict regulations.
Small finance banks, on the other hand, are relatively new and may not have the same level of brand recognition or history.. Small finance banks also operate with a smaller capital base, and their focus on unsecured lending to riskier segments of the population makes them more susceptible to defaults and non-performing assets.
“Get started by reviewing how secure the bank is. Check their records, if they’ve been in the news recently and reviews from other customers on online portals. If you find their record to be squeaky clean you can go ahead and invest,” said Adhil Shetty, CEO of BankBazaar.
Safety of Deposits:
In India, deposits up to Rs 5 lakh (per bank, per depositor) are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Services and Convenience:
Consider the convenience and accessibility of services provided by the banks. Large public banks generally have a wide network of branches and ATMs, making it easier to access your funds and manage your fixed deposit. Small finance banks may have a more limited network, which could be a consideration if branch access is important to you.