Suryoday Small Finance Bank Offers Higher Deposit Rates As It Launches Operations

Suryoday Small Finance Bank (SSFB), the latest to enter the differentiated banking sector, will offer a higher rate of interest than traditional banks to lure depositors.

Formerly known as Suryoday Micro Finance Ltd., the bank is offering a 6.25 percent interest rate on saving deposits up to 1 lakh and 7.25 percent on those between 1-10 lakh, the lender said in a media statement. For deposits over and above 10 lakh, the bank is offering a fixed rate of 7 percent.

Most large banks offer 4 percent on deposits in savings accounts. New private sector banks like Kotak Mahindra Bank Ltd. and Yes Bank Ltd., however, offer higher rates. The recently launched Airtel Payments Bank is also offering 7.25 percent as an introductory rate for those depositing upto Rs 1 lakh into their savings accounts.

With its introductory rates, Suryoday is positioning itself between traditional banks and payment banks.

Suryoday is also offering an interest rate of 9.75 percent to senior citizens on a one-two year fixed deposit. This, too, is higher than rates offered by full-service banks. ICICI Bank Ltd., for instance, offers a rate of interest of 7.40 - 7.50 percent to senior citizens on deposits of between one and two years. State Bank of India also offers between 7.40-7.45 percent.

The higher rates, however, are only introductory and may come down to "50 basis points over what other banks are offering", said R Baskar Babu, managing director and chief executive officer of Suryoday Small Finance Bank, to BloombergQuint.

To Compete Or Not To Compete

The bank is looking to expand slowly and cater to its existing customer base more holistically, Babu added. SSFB will expand to Maharashtra, Tamil Nadu, Odisha, Karnataka, Gujarat and Madhya Pradesh over the next few months.

The bank plans to grow at 45 to 60 percent rate in the next three years while keeping its branch network at the minimum.

Speaking to BloombergQuint, Babu said that the focus of the bank operations is not on acquiring a lot of new customers to begin with, but to service the existing loan clients from the microfinance company with a wider set of products and services.

“If we just tap into our existing 7.6 lakh customers and offer them savings account and associated products, that’s a big enough pool for us to operate in. We don’t need to unnecessarily add branches to show growth when we can use the business correspondents model to reach customers at their doorstep,” Babu said.

While Suryoday’s interest rates are comparable to those offered by newly launched payment banks, Babu said that the bank is not looking to compete with any of the existing players as the market is big enough for all entities to co-exist.

“We are tapping into the under-banked and unbanked population and our ticket sizes are likely to be one-tenth of those catered by private banks,” he added.

The company’s top management clarified during a press conference that it is expecting interest rates on loans to gradually come down as its cost of funds reduces with the inflow of low cost deposits.

“We plan to transmit cost effectiveness that comes from holding customer’s deposits to our loan customers as well. Even if we operate at the current cost structure, loans could become cheaper by 300 basis points going forward,” Babu said.

The bank’s model will be a hybrid of physical and digital banking as the bank plans to roll out net banking as well as other facilities through mobile apps.

Suryoday Micro Finance launched operations in May 2009 and has since expanded its customer base to 7.6 lakh customers with a Rs 985 crore gross loan portfolio.

Along with Suryoday, Utkarsh Small Finance Bank also received final approvals from the Reserve Bank of India to launch operations this month. Ujjivan Financial Services Ltd. is due to launch operations in February.