Government of India’s decision to hike the insured amount of deposits in banks from Rs 1lac to 5lac and introduction of new Income Tax slabs will have positive impact on number of small and new banks. Rising NPAs and collapsing banks had made it tough for people to opt for FDs with higher interest rates offered by several banks as people had little faith left in the management of banks on their commercial lending mechanism, which have been slow in identifying toxic assets in turn aggravating the risk management ability of the banks.
Government’s decision to hike the insured deposit amount will help relatively new banks such as Bandhan, IDFC,RBL and others which have competing hard with well established large banks by offering higher interest rates. The risk averse public till a few days back was unwilling to park high amount in such banks to due lack of insurance on high deposit amounts.
Many of these banks have been offering higher returns for amount above Rs 1 Lac. The usual gap between FD rates offered by such banks and large banks such as SBI, ICICI, were anything 1% upwards. But the tag of relatively new bank coupled with the insecurities arising from financial system and lack of safeguards for investors have made tough for the people to switch from their old banks to these new banks.
Full fledged banks such as Bandhan, IDFC and RBL will be making most of it from the budgetary announcement which also diluted the requirement for ELSS schemes in the investment agenda of many middle-class households. Many such tax payers who have had lower savings and were looking for high risk averse investment avenues with lower lock-in period will be more interested in the now parking their money in such high interest rates FDs while availing new exemption free tax slabs.