Loans Against Fixed Deposits
A Secure Borrowing Option
About
Fixed deposits (FDs) are not only a safe investment avenue but also becoming popular for borrowing money.
Loans against FDs have witnessed a significant surge, offering an alternative to personal loans and unsecured business loans.
What is a Loan Against FD?
It is a secured loan where customers pledge their FDs as collateral and receive a loan in return.
The loan value can reach up to 90-95% of the deposit amount.
Rapid Growth
Loans against FDs experienced a 43% increase during the last fiscal year, the highest rate in nearly a decade (as per RBI data).
It has emerged as one of the fastest-growing retail loan products, driving banks' loan books.
Outstanding Portfolio
The outstanding portfolio of loans against FDs stood at ₹1.13 lakh crore as of February, compared to ₹79,349 crore a year ago.
Advantageous Interest Rates
FD rates are currently at their peak, attracting borrowers to invest their surpluses in FDs.
The interest rates on outstanding deposits have increased by over 100 basis points in the last year (as per RBI data).
Cost-Effective Borrowing
The interest rate for an overdraft on FDs is generally 100-150 basis points above the FD rate.
Borrowers can access funds at 8-9%, which is significantly cheaper than personal loans or business loans.
Additional Features
Banks offer attractive features such as flexible payback duration, 'pay only when you use,' and charge interest accordingly.
Quick sanctioning, over-the-counter processing, and zero processing fees enhance the convenience for borrowers.
No Penalty
Borrowers do not need to break their deposits, avoiding any penalties.
Banks find lending against FDs favorable as they provide exposure to a safe asset while growing their loan books.
Low-Risk Weightage
Loans against FDs are linked to savings or current accounts, allowing easy monitoring.
Banks benefit from low-risk weightage assets, ensuring stability in their portfolio.