Small finance banks (SFB) offer higher interest rates on Fixed Deposits (FD) to both general customers and senior citizens to garner deposits from the market. Swaminathan J, deputy governor, of the Reserve Bank of India (RBI) has alerted the SFBs on their possible over-dependence on these high-cost FDs to mop up cash. He also cautioned against charging usurious fees on loans.
Right now, there are about a dozen SFBs in India that are operating with licence from the RBI. Incidentally, all of these banks have to function under the strict supervision of the banking regulator.
Unhappy with “usurious fees”
“It is disheartening to come across egregious practices by some SFBs, such as charging excessive interest rates, collecting instalments in advance as well as not adjusting such advance collections against loan outstanding, levying of usurious fees, etc. It is also observed that grievance redressal mechanism is far from adequate in most SFBs,” said Swaminathan in an event.
Bait of high interest rates
In a recent event, Swaminathan advised the boards of the SFBs to have a look at whether they are becoming more and more dependent on issuing FDs – also referred to as Term Deposits (TD) – to attract deposits. According to reports, the deputy governor also had a word of caution for this class of lenders – that they should not charge high interest rates from the debtors.
Backdrop of outflow from banks
Significantly, the cautionary words from the deputy governor come against the backdrop of recent concerns expressed both by the RBI and capital markets regulator Sebi (Securities and Exchange Board of India) bosses over the trend of Indians pulling out deposits from the banks and investing them in the equity markets and mutual funds.
Over the past few years, more and more mainline commercial banks are offering higher interest rates on fixed-term FDs to attract deposits to counter this trend.
Original purpose of SFBs
Last week Swaminathan said when RBI introduced SFBs, the central bank’s objective was to ensure rolling out banking services faster throughout this country and reach a bigger segment of people who were “unbanked”. The intension was to help in the economic progress of the country.
RBI deputy governor Swaminathan J did some plain speaking to Small Finance Banks (SFBs) on excessive dependence on paying too high interest on FDs. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
