When Bank Fixed Deposit Rates Are Equal To Home Loan Rates

Small finance banks, payments banks and newly-started private sector banks (IDFC Bank and Bandhan Bank) are offering higher interest rates on savings accounts and fixed deposits compared with bigger rivals in the banking universe. In fact, some new entrants are offering interest rates on fixed deposits to the tune of home loan rates of some established rivals. Microlenders Suryoday and Utkarsh recently started operations as small finance banks. With this, the number of small finance banks operating in India has risen to four, with the other two being Equitas Small Finance Bank and Capital Small Finance Bank.

Small finance banks offer basic banking services, accepting deposits and lending to unserved and under-served sections, including small business units, small and marginal farmers, micro and small industries, and entities in the unorganised sector.

For example, Suryoday, which opened its first branch in Navi Mumbai earlier this month, is offering an interest rate of 9 per cent on 1-2 year deposits. For senior citizens, the interest rate goes up to 9.75 per cent.  On savings deposits, the bank is paying in the range of 6.25-7.25 per cent, payable on a monthly basis as compared to quarterly for most of the other banks. 

The interest rate offered by Suryoday on deposits is higher than those offered by other big commercial banks (6-7 per cent). Rate of interest offered by Suryoday is equal to home loan rates (annualised basis) offered by large banks, says a note from brokerage Religare. 

Interest income from bank fixed deposits is taxable. At the same time, interest payable on home loans is tax deductible up to Rs 2 lakh per year. And there are expectations that the government could hike tax deduction on home loans further in this year's Budget. 

Payments banks can accept deposits from individuals and small businesses up to a maximum of Rs 1 lakh per account. Airtel Payments Bank, for example, is offering 7.25 per cent on savings accounts.