Though both public sector and private sector banks have been decreasing the rate of interest on Fixed Deposits (FD), Regional Rural Banks (RRBs) are still able to provide higher interest rates on FDs, thus providing a better alternative for people looking for safe investments.
There are approximately 56 RRBs across the country, operating in the public sector with a focus on rural areas. Popularly referred to as Grameen banks, most of these RRBs offer interest rates on FDs higher than regular commercial banks. For instance, the current interest rate on FDs (also called term deposits) offered by the SBI for 1-2 years duration is 6.65 per annum; this is 7.15 per annum for senior citizens. For the same period, Andhra Pradesh Grameena Vikas Bank (APGVB) offers 7.10 per cent per annum for the general public and 7.60 per annum for senior citizens. A similar look at the FD rates of most private banks shows that FDs offered by RRBs are lucrative for deposits up to Rs 1 crore.
“When compared to regular commercial banks, most RRBs offer higher interest rates on FDs, though the rate may vary from bank to bank. They do not just offer a better interest rate but also ensure the safety of deposits, as the Central government, the respective state governments and a sponsor bank (commercial bank) will have stake in these RRBs. Though focused on rural areas, the RRBs are so popular that in our bank alone, there are more than Rs 14,000 crore deposits by the end of FY18. Though the rate of interest may be slightly higher than commercial banks, the number of people depositing in our RRB has been steadily rising,” said Malladi Satyanarayana, a senior official from APGVB.
According to an RBI report based on recent performances, a majority of RRBs have been registering profits and increasing their deposits and earnings, thus creating confidence among depositors. Set up with an aim to address both farm and non-farm needs of rural populace, several RRBs have been lapping up technology and increasing their product and service offerings, giving even commercial banks a run for their money.
“The prime focus of RRBs is to cater to banking needs of people in rural areas. Unlike commercial banks, revenue sources are limited for RRBs, and therefore, they try to attract deposits by offering higher interest rates than commercial banks. Every RRB is sponsored by a commercial bank and guided by government and institutions like NABARD.
Therefore, there is no need for apprehension while saving in FDs with RRBs. While there are no specific tax benefits given especially to FDs in RRBs, standard benefits and deductions that apply to FDs in general, apply here also,” explained K Narasimha Murthy, a banking expert and advisor to AP government.
What Makes FDs In RRBs Better
● RRBs offer higher interest on FDs than commercial banks ● On an average, 0.5-1% higher interest rate offered on various term deposits up to Rs 1 crore ● Safety of deposits ensured ● RRBs are owned by government and guided by a sponsor bank ● As most RRBs are digitalised, online monitoring of deposits possible