Is there an investment opportunity in PSP Projects shares?

For senior citizens who are past their employment age, the search for relatively higher returns with safety is a constant endeavour. Most of them have nothing but interest income to survive on. But interest rates have been plummeting for more than a decade, jeopardising their only source of income.

Attractive rates
In such a situation small finance banks, a special category of banks that focus on the bottom-of-the-pyramid segment of the population, are offering 7% or more – even up to 8.5% — on recurring deposits (RD) for senior citizens.

This interest is far higher than post offices and regular commercial banks.

For example, the interest rate on RD in post offices is just 5.8%.

On the other hand, the maximum rate of interest rate offered by State Bank of India (SBI) on RD is 6.20% for senior citizens.

Recurring deposit
An RD is a type of term deposit which offers people a safe and secure investment. Under this scheme people have to deposit a fixed amount monthly for a pre-determined tenure. RD is one of the most popular investment avenues in India. Interest rates on RDs are quarterly compounded.

Best returns
Utkarsh Small Finance Bank, a bank headquartered in Varanasi, is offering 8.5% interest on RDs of tenures between 24 months and 36 months.

North East Small Finance Bank is offering 8% to senior citizens on RD of tenure of 2 years.

Other popular small finance banks such as Jana is offering 7.75% interest on the more than 36 months to 60 months tenure RD for senior citizens. The interest rate in Suryoday Small Finance Bank is 7.5% per annum for the tenure of 5 years.

Bank for the unbanked
The Union budget of 2014-15 first announced the policy that a special category of Small Finance Banks would be set up. The basic objective was furthering financial inclusion through serving banking activities to un-served and underserved sections of the society.

SFBs are regulated by the RBI and follow compliance norms similar to normal commercial banks. They give a minimum of 75% of their loans to the priority sector. The very fact that these banks do not have very big loan exposures to a single corporate group seems to be one of the factors that increase their security.

Small finance banks can undertake all basic banking activities including lending and taking deposits.

Some investment advisers do not recommend that one should put all their money in SFBs. However, the Deposit Insurance Credit Guarantee Corporation insures deposits, savings bank balance and RDs in these banks too to the tune of Rs 5 lakh.