Financing the growth in Bharat: 4 small finance banks with upside scope of up to 38%

When it comes to the rural economy, most believe that it is auto and FMCG companies which give a good idea how the rural economy is working, But there is another set of companies which might have a better insight on how the rural and even semi urban part of the economy are doing because they work in this part of the country and also because of the fact of lending in those businesses which operate in the area. Despite all the headwinds, these small finance banks have been able to grow.

Experts believe that with liquidity becoming tighter and credit demand remaining strong, lending institutions are in the race to acquire the maximum deposits. SFBs are offering FD rates that are 75-100 basis points higher than those offered by PSBs and private banks.

Finance companies are expected to moderate loan disbursals following the banking regulator's recent restrictions on high-margin but potentially risky business lines such as gold loans and securities financing. The Reserve Bank of India (RBI) recently ordered curbs on IIFL Finance's gold loans and JM Financial Products' financing of bonds and stocks. This regulatory action is likely to make banks more conservative in lending to non-bank financiers, leading to concerns about liquidity for onward lending. The RBI's moves are aimed at curbing unethical practices and systemic risks in the financial sector, although they may temporarily impact credit expansion.

Collaboration is another option for lenders

Given below is a list of six banks which are offering more than 6% interest on fixed deposits (FDs) of an amount less than Rs 2 crore. The highest FD interest rate is being offered by Unity Small Finance Bank.

During the Covid crisis, governments and central banks slashed interest rates and pumped in huge amounts of money to revive their economies. But as activity resumed and pent-up demand burst out, the excess money caused high inflation, which has stubbornly refused to return to official targets.

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As compared to commercial banks, small finance banks offer higher interest rates on term deposits or FDs.

The bank didn’t suffer loan defaults but was hit by bond losses that many US banks are vulnerable to.