Fixed Deposit (FD) is an important means of traditional investment. Guaranteed returns are available in this. Banks or other financial institutions offer attractive interest rates for better returns. Many times people also make FD in Small Finance Bank for better returns. Obviously here you will also get fixed returns on the fixed amount. But have you ever thought that apart from the bank or post office, how safe is the FD you have made in a small finance bank? Yes, it is important to understand this. Small finance banks often offer higher interest rates to attract more customers. Some small finance banks are offering interest rates up to 9.5% on FDs to senior citizens, which is much higher than the interest rates offered by major banks. Let us look at some such things that you should know before making FD in Small Finance Bank and only after examining these things, you should decide to invest.
regulation
Like big banks, small finance banks are also financial institutions regulated by the Reserve Bank of India. Being regulated by RBI, small finance banks also have to work according to strict guidelines. This is the reason why the depositors of Small Finance Bank get confidence and security.
deposit insurance
Deposits are insured under the Deposit Insurance and Credit Guarantee Corporation. It provides uniform insurance coverage up to Rs 5 lakh to every depositor in every bank. This insurance guarantees a safety net for small depositors. Nevertheless, an investor should carefully evaluate specific parameters to ensure the financial health of the bank before investing.
capital adequacy ratio
A strong capital adequacy ratio clearly reflects the bank’s ability to absorb losses, thereby reducing the overall risk of default. Standing levels of NPAs are also important, as they directly impact the bank’s liquidity position and risk of default.
stable management team important
An experienced and stable management team with proper succession planning is important, as the absence of strong governance can lead to inconsistent performance. Credit rating represents the overall financial well-being of the bank considering all tangible and intangible factors. Considering the higher interest rates compared to mainstream banks, making an FD in a small finance bank is an attractive option, but it is wise to evaluate the financial health of the bank before investing.
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