With eight out of ten small finance banks now fully operational, aggressive deposit mobilisation in the first year of operation has turned out to be the key strategy for almost all the new entities. In addition, the new age banks are betting big on technology to reduce the cost of operations.
All the operational small finance banks are offering up to 100-150 basis points higher interest rate on term deposits over market rates. This apart, some of the banks are also eyeing bulk or corporate deposits. The idea behind the move is to replace high-cost loans taken by small finance banks as microfinance institutions with relatively low-cost deposits.
“Our highest interest rate on fixed deposits is around 8 per cent and is, in general, one percent higher than the prevailing market rate. We are looking for both bulk and retail deposits and aiming to replace high-cost loans with low-cost deposits. We are also raising deposits through certificates of deposits (CDs),” said Samit Ghosh, MD and CEO, Ujjivan Small Finance Bank.
The highest interest rate offered by the Varanasi-based Utkarsh Small Finance is 8.5 per cent on term deposits. The bank has set a target of mobilising at least Rs 2,000 crore deposits by the end of March 2018.
“We have a two-pronged strategy for deposit mobilisation. First, we are focusing on having high-value bulk deposits from the corporate sector. We are eyeing entities like high net worth individuals (HNIs), non-banking finance companies (NBFCs) and regional rural banks for that. For retail deposits, we are looking at our existing microfinance customer base, as well as their family members and neighbours. This apart, a new set of customers in urban and semi-urban areas, who traditionally have been keeping money in banks, are also on the radar,” said Govind Singh, MD and CEO, Utkarsh Small Finance Bank.
The bank is looking to digitise its entire spectrum of transaction, including transactions in rural areas, in the next few months said Singh.
The Kerala-based ESAF Small Finance Bank, which has completed close to six months of operation has so far mobilised close to Rs 1,040 crore deposits. The bank has been offering a high interest of nine per cent for deposits above one year and less than three years. At 9 per cent, it is one of the highest interest rate offered by a bank at present. In view of the falling interest rate scenario and in alignment with the rates offered by other small finance banks, ESAF is planning to review its interest rates next week, said K Paul Thomas, MD and CEO, ESAF. The bank has also rolled out tab banking for smoother transactions in rural areas and is looking to diversify its loan portfolio in sectors like small and medium enterprises (SMEs), housing and agriculture finance.
Suryoday Small Finance Bank, which has been offering an interest rate of 8.75 per cent for a period greater than 24 months and less than 36 months, is looking to continue offering higher interest rates until its deposit pool reaches around Rs 500 crore. The bank is looking to reduce its operational cost by at least 100 basis points through the use of tab banking, according to R Baskar Babu, MD and CEO, Suryoday Small Finance Bank.
“Technology will play a big role in our day-to-day operations. We have found out that nearly 75 per cent of our customers have at least one smartphone user in the family. We are aiming to digitise all transactions and route it through tab banking. This should reduce the cost of operations by at least 100 basis points,”‘ said Babu.
While offering high rates on interest on deposits, most of the SFBs are keeping their interest rate on loan products on a higher side. At present, the MCLR for most of the SFBs is between 14-16 per cent, according to a report by Kotak Institutional Equities. The interest rate offered on savings accounts for most small finance banks is around 6 per cent, except Ujjivan, which has been offering a 4 per cent interest rate.