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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.
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 slightly higher interest rates that might interest senior citizens.
There are about 10 small finance banks in the country that have been given license by the Reserve Bank of India.
Attractive rates
A few of these banks are offering an interest rate of 7% for senior citizens. In comparison, both private and public sector banks are offering far lower rates.
For example, the State Bank of India (SBI) and HDFC Bank offer 5.8 percent and 5.65 percent interest on three-year FDs for senior citizens respectively.
Small Finance Banks
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.
However, some investment advisers do not recommend that one should put all their money in SFBs.
Best returns
Suryoday Small Finance Bank is offering as high as 7.5% interest on FDs of tenures 2 to 3 years.
Ujjivan Small Finance Bank is offering 7.25% interest on the same tenure FD for senior citizens, whereas the interest rate in AU Small Finance Bank is 7% per annum.
In the Equitas Small Finance Bank 7 percent maximum interest rate is being offered to senior citizens on FD of tenure of 888 days.