Small finance banks have gained popularity among depositors in recent years due to their attractive fixed deposit (FD) interest rates. While higher FD interest rates in 2025 attract depositors, many investors still remain worried about the safety of their deposits in a small finance bank. Most are concerned about the stability, trustworthiness, and longevity of the bank.
So, are small finance banks safe for investment? Should one take advantage of higher small finance bank FD rates to grow wealth? This article addresses these queries about small finance bank FDs in detail.
What are Small Finance Banks?
A small finance banks (SFB) is a type of specialised bank authorised by the Reserve Bank of India (RBI) to offer banking services to particularly the underserved and unserved communities with an aim to promote financial inclusion in the country. They primarily focus on offering microfinancing opportunities to small business units, small farmers, micro and small industries, and the unorganised sector.
Given these objectives, SFBs are required to open at least 25% of their branches in unbanked rural centres and allocate 75% of their ANBC (Adjusted Net Bank Credit) to the priority sectors. The priority sector includes:
- Agriculture
- Export Credit
- Micro, Small and Medium Enterprises (MSMEs)
- Education
- Renewable Energy
- Housing
- Social Infrastructure
- Others
In short, small finance banks offer loans to people and businesses who struggle to get credit through traditional banks due to a limited credit history. In addition to this, small finance banks also offer standard savings and investment products like savings accounts, fixed deposits (FDs) and recurring deposits (RDs). Among the different investment options offered, small finance bank FDs remain a popular choice among investors.
Are Small Finance Bank Investments Safe?
Here’s why small finance bank investments can be considered safe:
1. RBI’s Regulatory Oversight:
Just like regular commercial banks, the RBI monitors and regulates small finance banks as well. This means that all small finance banks have to operate under the RBI’s guidelines and supervisory framework. They also have to adhere to the RBI’s regulations on Statutory Liquidity Ratio Requirements and Cash Reserve Ratio Requirements. This regulatory oversight helps build trust and provides a degree of security for depositors opting for investments like small finance bank FDs.
2. DICGC Insurance Cover:
Small finance bank investments (including savings, current, fixed, and recurring deposits) are insured under the DICGC (Deposit Insurance and Credit Guarantee Corporation) cover. The DICGC insurance is protects up to ₹5 Lakhs per depositor (per bank), covering both the principal and interest components. In the rare event of bank failure, the DICGC cover acts as a safety net for depositors making investments in small finance banks.
Understanding Small Finance Bank FD Interest Rates
Among the different types of investment products offered, small finance bank FDs remain popular due to their higher interest yields. Typically, small finance bank FD interest rates tend to be higher than those offered by regular commercial banks. These banks offer a higher rate of interest to draw depositors and build a stable funding base. Higher FD interest rates helps small finance banks to compete better with established banks and expand their own customer base.
For instance, Suryoday Small Finance Bank FD interest rates range up to 8.20% for regular citizens. Senior citizen FD interest rates go up to -8.40%. Similarly, Unity Small Finance Bank FD interest rate go up to 6.75% p.a. for regular depositors, while senior citizens enjoy higher FD interest rates of up to 7.25%. You can know more about both these small finance bank FDs on the GoldenPi platform and invest with ease.
Things to Consider When Investing in a Small Finance Bank FD
As mentioned above, small finance bank investments are considered relatively safe given RBI’s regulatory oversight and the DICGC insurance cover. That said, there are still a few other factors investors can consider before investing in a small finance bank FD:
1. Capital Adequacy Ratio:
Capital adequacy ratio (CAR) indicates the bank’s capacity to manage losses and maintain financial stability. RBI has set CAR at 15% for small finance banks. Since SFBs typically lend to underserved and higher-risk borrower segments, the chances of loan defaults can be relatively higher than in larger banks. A strong CAR over above the regulatory minimum, suggests the bank has a stronger buffer of capital to absorb such potential losses and still sustain its operations.
2. NPAs (Non-Performing Assets):
High NPAs are indicative that a bank has too many loans that are not yielding interest or have become non-functional. High NPA levels in a small finance bank may indicate reduced profitability and increasing risk.
3. Credit Rating:
Credit rating agencies like CRISIL and ICRA give small finance banks credit ratings. A higher credit rating of indicates that the bank will be able to maintain a strong credit profile and signals to a lower possibility of credit risk.
Considering a Small Finance Bank FD? Explore Your Options and Invest Through GoldenPi
Investors looking for better yields than regular banks can consider investing in a small finance bank FD. Since small finance banks are regulated by the RBI, they operate under strict prudential norms designed to safeguard depositors.
Small finance bank FDs are also considered relatively safe because deposits of up to ₹5 lakh are protected under the DICGC insurance cover. But there may still be risks given their exposure to higher-risk borrower segments. As an investor, you should conduct due diligence by reviewing factors such as credit ratings, capital adequacy ratio (CAR), NPA levels, and overall financial stability before investing in a small finance bank FD.
You want to explore small finance bank FDs, you can visit the GoldenPi platform. Here, you can review Suryoday Small Finance Bank FD and Unity Small Finance Bank FD details with ease. You can also compare their features and interest rates on a single platform to choose the most suitable option completely hassle-free.
Are Small Finance Banks Good for Investments FAQs
1. Is it safe to open an FD in a small finance bank?
Yes. Money invested in a small finance bank FD is relatively safe. Small finance banks are regulated by the Reserve Bank of India (RBI) and deposits of up to ₹5 lakh is insured by the DICGC insurance cover.
2. Should I invest in a small finance bank FD?
You may consider a small finance bank FD if you seek higher yields than traditional banks without market-linked volatility. Deposits up to ₹5 lakh are insured by DICGC, adding safety. However, always review indicators such as credit rating, capital adequacy ratio, and NPAs before committing funds.
3. Why do small finance banks offer a higher rate of interest?
Small finance banks offer higher FD rates to attract depositors and build a stable funding base, as they are relatively new players. Their lending is largely to small businesses and higher-risk segments, which increases risk. To compensate, they provide depositors with more attractive interest rates.
4. Are small finance banks regulated by the RBI?
Yes, Small finance banks are regulated by the Reserve Bank of India. They follow strict rules on governance, lending, and capital adequacy. RBI mandates a 15% Capital Adequacy Ratio (higher than commercial banks) since SFBs lend to riskier borrowers. This oversight helps ensure financial discipline and depositor protection.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Fixed Deposit schemes are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
