Recently, a few small finance banks (SFBs) raised their interest rates on fixed deposits (FDs), beating the rates offered by larger banks. R Baskar Babu, managing director and chief executive officer (MD & CEO) of Mumbai-based Suryoday Small Finance Bank, said rates are likely to go up even more on account of a notable gap between credit and deposit growth. In an exclusive interview with Moneycontrol on September 14, Babu also shared his views on the sectors that look promising for credit growth, prevailing trends and the course of interest rates. Edited excerpts:
What is driving the sharp surge in deposit rates in SFBs?
FD interest rates have been in line with the increase in the RBI (Reserve Bank of India) repo rates. Currently, the peak FD rate at Suryoday SFB is 7.49 percent for 999 days’ deposits.
In June 2022, the banking sector’s credit and deposit growth increased by 13.2 percent and 8.3 percent, respectively, compared to the previous year. The difference in growth percentage between credit and deposit growth is approximately 5 percent, which is the highest in the last three years. The reason behind this difference is people have taken more loans from banks compared to that they deposited into the bank.