Finance Bank: SFBs are considered riskier than other commercial banks. If you are interested in opening an account with a Small Finance Bank, you must do a detailed assessment of the Small Finance Bank before depositing your money. In such a situation, here we are telling some ways by which you can check whether your small finance bank is safe or not.
RBI: Small Finance Banks (SFBs) have been offering attractive returns on FDs ever since the Reserve Bank of India increased the repo rate several times since May last year. But SFBs are considered riskier than other commercial banks. If you are interested in opening an account with a Small Finance Bank, you must do a detailed assessment of the Small Finance Bank before depositing your money. In such a situation, here we are telling some ways by which you can check whether your small finance bank is safe or not.
digci cover
Check whether SFB is covered under Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance cover of Rs 5 lakh. This insurance covers both principal amount and interest. Ensure that the Fixed Deposit of Small Finance Bank offers DIGCI insurance cover.
Evaluate the financial position of the bank
Most small finance banks disclose their financial position on their website. You can have a look at various factors of SFB such as Current Account Savings Account (CASA) Ratio, Net Fixed Funds Ratio (NSFR), Liquidity Coverage Ratio (LCR) and Capital Adequacy Ratio (CAR).
CASA Ratio
Ratio is the share of current and savings account deposits in the total deposits of the bank. A high CASA ratio means that the bank’s profitability is high and it can raise funds cheaply.
LCR
LCR means that the bank has the capacity to withstand short term liquidity shock. LCR takes into account the High Quality Liquid Assets (HQLA) of a financial institution. A higher LCR means that the bank is more resilient to economic shocks. According to RBI, SFB should have 100 percent LCR.
Net Stable Funding Ratio
The Net Stable Funding Ratio of Small Finance Bank reflects its flexibility in the long term. According to RBI, banks should have this minimum of 100 percent.
Diversified Lending
Check whether the SFB has heavily lent to a particular sector or corporation. This can put it at greater risk of failure. A diversified loan portfolio will enable the bank to mitigate this risk.
