small banks whose core business is micro finance can easily offer 8% interest as long as lending rate of micro finance loans is above 16%. By and large net interest rate of most majority small banks whose core business is micro finance is 18%. However security of deposits in these banks is as good or as bad as Chit funds, NBFCs and urban cooperative banks. There is scope for these banks going bust due to several factors including heavy loan defaults all of a sudden. The only reason why deposits can be made in these banks is Promoters and owners of these banks usually do good business just like any other businesses. Here and there fly by night small banks can come-up. Entry as small bankers is easy for frads to make quick money and exit.
