Cash News
Earlier this week, Union Finance Minister Nirmala Sitharaman encouraged financial institutions to develop innovative deposit products to enhance customer attraction. In the latest RBI Bulletin, released on Monday, Governor Shaktikanta Das also highlighted that the share of bank deposits has declined with households allocating savings to mutual funds and pension funds.
“It is observed that alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth. As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand,” the Governor noted.
Das highlighted a shift in household savings, noting that while bank deposits remain the dominant financial asset, their share is declining as households increasingly invest in mutual funds, insurance, and pension funds.
This move was prompted by growing concerns surrounding the “mismatch” within the credit-to-deposit (CD) ratio observed among banks. The existing scenario highlighted a trend where banks are extending more loans than the volume of deposits they are amassing. This imbalance poses potential risks by potentially causing liquidity issues and could impact the Reserve Bank of India’s (RBI) capacity to address cash demands effectively.
Presently, the CD ratio stands at 0.79 per cent, surpassing its historical average of 0.75 per cent, as reported by 360 ONE Asset Management Ltd.
Amid this, Suryoday Small Finance Bank has said it is planning to stretch the maximum tenor of a Fixed Deposit (FD) to over 20 years vis-a-vis the 10 years that banks are offering currently.
“Currently, banks offer FDs for up to 10 years. We are working on a longer tenor FD,” said R Baskar Babu, MD & CEO, Suryoday SFB.
Top points
1. Suryoday Small Finance Bank (SFB) is planning to introduce a new fixed deposit (FD) scheme with a tenor exceeding 20 years. In comparison, the current average tenor for fixed deposits is limited to 10 years.
2. The innovative FD scheme will feature a systematic withdrawal plan introduced at the midpoint of the extended tenor, offering customers a unique and strategic financial planning option.
3. The long-term FD product may be on the lines of an annuity plan offered by life insurance companies, but for a limited period.
4. The interest rate for this FD product could be linked to the 10-year benchmark G-Sec. Currently, the yield for this security is 6.85 per cent.
5. R Baskar Babu said: “The product is at the trying stage. We are looking at the interest rate risk and all that…So, if a customer saves, say, Rs 50,000 per month for 10-11 years, after the 11th year he can opt for a systemic withdrawal plan, which is, say, two times the invested amount, automatically for another 11 years.”
6. Currently, the State Bank of India (SBI) is possibly the only bank to offer an annuity deposit scheme for three/five/seven or 10 years.
7. Under the State Bank of India’s scheme, a client has the option to place a single lump sum deposit and in return, receive repayment through monthly annuity installments. These installments would consist of a portion of the principal sum along with the accrued interest.
8. The annuity payments are scheduled for the anniversary date of the month subsequent to the deposit month. The interest rate applied is in line with the rates offered for Fixed Deposits for both the general public and senior citizens.
Current FD rates offered by Suryoday Small Finance Bank
| Period | Interest Rate (Per Year) |
Annualised Yield° (%) |
Senior Citizen Rate # (Per Year) |
Annualised Yield° (%) |
|---|---|---|---|---|
| 7 days to 14 days | 4.00% | 4.00% | 4.50% | 4.50% |
| 15 days to 45 days | 4.25% | 4.25% | 4.75% | 4.75% |
| 46 days to 90 days | 4.50% | 4.50% | 5.00% | 5.00% |
| 91 days to 6 months | 5.00% | 5.00% | 5.50% | 5.50% |
| Above 6 months to 9 months | 5.50% | 5.61% | 6.00% | 6.14% |
| Above 9 months to less than 1 Year | 6.00% | 6.14% | 6.50% | 6.66% |
| 1 Year* | 6.85% | 7.03% | 7.35% | 7.56% |
| Above 1 Year upto 15 months | 8.25% | 8.51% | 8.75% | 9.04% |
| Above 15 months to 2 years | 8.50% | 8.77% | 9.00% | 9.31% |
| Above 2 Years to 2 years 1 Day | 8.60% | 8.88% | 9.10% | 9.42% |
| 2 Years & 2 Days | 8.65% | 8.93% | 9.10% | 9.42% |
| 2 years 3 Days up to 3 Years | 8.60% | 8.88% | 9.10% | 9.42% |
| Above 3 Years to less than 5 Years | 6.75% | 6.92% | 7.25% | 7.45% |
| 5 Years | 8.25% | 8.51% | 8.75% | 9.04% |
| Above 5 years to 10 years | 7.25% | 7.45% | 7.75% | 7.98% |