Following the RBI’s sharp 75 basis point (bps) cut in March and another 40 bps cut in May, the repo rate has come down from 5.15 per cent at the start of 2020 to 4 per cent now.

In tandem, large commercial banks have slashed their deposit rates by 70-160 bps in the last year or so.

With rates at historical lows, those depending on bank fixed deposits (FDs) such as senior citizens have been left with fewer options than ever before. Small finance banks (SFBs), too, have cut their deposit rates by 100-150 bps the pastyear. Still, SFBs offer higher rates than others.

Attractive rates

FDs from Equitas Small Finance Bank are worth considering. Equitas SFB is offering 6.75 per cent per annum on its one-year to 18-month deposits. For senior citizens, the rate is 7.25 per cent per annum, that is, an extra 0.50 percentage points.

For similar one- to two-year deposits, public sector banks offer rates of 4.9-5.3 per cent and most private sector banks offer less than 6.75 per cent. Senior citizens get an additional 0.50 percentage points on these rates from most banks.

Given the current low rates, investors are better off putting their money in shorter-tenure deposits so that they don’t lose out on better returns once the rate cycle starts turning up.

Hence, one-year FDs are a good option now. While you can opt for deposits of below one year, too, the interest rates on these are lower.

Better rates apart, FDs with SFBs (like with other banks) are covered under the Deposit Insurance and Credit Guarantee Corporation’s (DICGC) deposit insurance cover of ₹ 5 lakh per bank. Fixed deposits with NBFCs, some of which have attractive rates, too, can be riskier and are not covered by DICGC.

Apart from booking an FD in person at the bank branch, investors can also book one online on Equitas SFB’s website. But the maximum deposit amount allowed online is ₹ 90,000 and you can choose a tenure of only between seven and 365 days.

The bank charges a penal rate of 1 per cent on FDs closed prematurely. There is no penalty for premature closure of deposits (under ₹2 crore) that have completed over 180 days. Premature withdrawal in case of death of the primary holder, too, is not penalised.

Healthy financials

Apart from good rates, the bank’s healthy financials also lend comfort. Equitas SFB commenced operations as a SFB in September 2016. It came out with an initial public offering in October 2020.

Equitas SFB has a well-diversified loan portfolio and is into micro- finance, small business loans and vehicle finance.

Nearly 67 per cent of the bank’s loan book of ₹16,530 crore as of September-end 2020 was towards clients in South India (largely Tamil Nadu).

As of September-end 2020, the bank’s gross NPAs (non-performing assets) were 2.48 per cent, down from 2.68 per cent in June-end. Its tier 1 CRAR (capital adequacy ratio) of 20.16 per cent as of September 2020 is well above the minimum regulatory requirement.

Impacted by Covid-19, many SFBs saw their collection efficiencies deteriorate. With an easing of lockdown restrictions, Equitas SFB has seen its collections improve across many loan segments (excluding vehicle finance). The bank’s overall collection efficiency has gone up from 49 per cent in June 2020 to over 94 per cent in October 2020.

With the moratorium ending on 30 August, customers accounting for 94 per cent of the bank’s advances paid their EMIs during at least September or October (or both).

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