Top-deck non-bank lenders, such as Shriram Transport Finance, are seeking to grab a bigger slice of household savings, offering returns as high as 8.84% on corporate deposit plans amid increasing credit demand and moderate liquidity.
Banks are relative stragglers in the race for deposits. Average rates being offered in specific segments by some lenders are sometimes less than sovereign bond yields.
Mortgage lender HDFC, Bajaj Finance, Mahindra Finance, ICICI Home Finance and LIC Housing are among NBFCs graded triple-A. They are offering returns in the range of 6.15-7.10% across 1-7-year maturities. The returns exclude softer terms for senior citizens and women, who obtain additional rewards.
“The biggest benefit of retail deposit is its stickiness helping us manage asset liabilities mismatch in a better way,” said Umesh Revankar, managing director, Shriram Transport Finance. “Prior to the pandemic public retail deposits were costlier than bank loans. That is no longer the case, adding to our advantage.”
“We will endeavour to garner more retail deposits extending our brand reach, better service and more customisation” he said.
The financier of second-hand vehicles is offering more than 8% on five maturities – from 30 to 60 months. Rating company ICRA rated deposit plans AA+(stable), a notch lower than the top grade.
At Shriram Transport, the average tenor for retail deposits is now three and a half years. The average cost of funds for such tenor is 8.40% including distribution cost, which is collectively a tad lower than bank loans. The differential was up to 50 basis points during the pre-pandemic days, when liquidity was tight and public deposits more expensive than bank loans.
“Corporate deposit plans from sound non-banking finance companies are drawing investors, who seek to earn higher interest income,” said Anil Chopra, group director at Bajaj Capital group of companies. “Banks are raising lending rates much faster than their deposit rates. This paves the way for deposit taking non-banks. Investors should only worry about liquidity as those deposits do not offer flexibility the way banks do in redeeming plans ahead of scheduled maturity.”
As a thumb rule an individual investor should not invest more than 5% of total financial portfolio in a single NBFC’s fixed deposits.
“Bank deposits are following the rate hike cycle with a wide lag,” said Soumyajit Niyogi, director at India Ratings. “This, in turn, is paving the way for branded non-banking finance companies that are seeking to raise retail deposits. A sharp drop in deposit rates during the pandemic had created panic among common retail depositors.”
The weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits of scheduled commercial banks increased nine basis points to 5.38% in September this year from 5.29% in the preceding month, showed the latest data released by the Reserve Bank of India (RBI) Monday.
The five-year government bond Monday yielded 7.38% while the 10-year benchmark yield was at 7.45%, reflecting a large differential with bank deposit rates. Yields were about 15-25 basis points lower in September.
The State Bank of India offers 6.10-6.90% for five-year fixed deposits.
The weighted average lending rate (WALR) on fresh rupee loans of banks increased 26 basis points to 8.59% in September.