Term deposit rates have been rising steadily since the RBI started raising the repo rate in recent months. And leading non-bank financial companies (NBFCs) offer deposits at attractive interest rates.
Shriram Transport Finance Company (STFC) offers FDs with terms ranging from 18 to 60 months, with the interest rate offered being up to 8 percent. Seniors get a little more. The deposits are rated AA+ (stable) by ICRA and AA+/stable by India Ratings and Research, indicating adequate security in servicing the principal and interest components.
Are these tariffs attractive? Here’s what you need to know before investing in STFC’s Fixed Deposits (FDs).
Up the ante on the rates
It’s been a while since a bank or NBFC has offered 8 percent interest on their FD. Shriram Transport Finance offers 8 percent interest on deposits with a maturity of 60 months. Since the interest is calculated on the basis of the monthly rest, there is a return of around 8.3 percent.
Deposits with maturities from 18 to 60 months are available. There are cumulative and non-cumulative options. Four payout frequencies are available for the non-cumulative option – monthly, quarterly, semi-annually and annually. Investors should choose the mode based on their cash flow needs.
The cumulative option is intended for investors who do not need regular cash flows and want to benefit from compound interest. The minimum deposit amount is Rs 5,000.
Seniors get an additional 50 basis points of interest, making it quite attractive for the elderly.
There are two points to note here. Deposits from NBFCs do not benefit from the Rs 5 lakh deposit guarantee offered by the DIGCC, a division of the RBI.
The entire interest portion is added to your income and taxed on the assessment basis that applies to you.
STFC on comeback trail
The vehicle financier is getting back on track in the post-COVID era and key metrics are improving.
– Assets under management increased 9.5 per cent yoy to Rs. 130,689 crore in June 2022
– Collection efficiency was 101.45 percent in June 2022, compared to 91 percent in June 2021
– Stage 3 gross assets fell 6.18 percent year-on-year to Rs.9,062 crore. Stage 2 net assets fell 18.7 percent more sharply to Rs.4,384 crore.
– The ratio of capital to risk-weighted (weighted) assets, CRAR, was healthy at 22.54 percent in June 2022
– The liquidity coverage ratio was healthy at almost 192 percent
All of these metrics provide a reasonable level of comfort on the business front.
With the automotive sector — both passenger and commercial vehicle segments — on the up, STFC’s prospects should improve over the next few years. Shriram City Union Finance and STFC will merge. Since Shriram City Union Finance also offers FDs at the same rates and terms, investors can hold on to STFC’s deposits for now.
What should investors do?
Given the relatively higher interest rates, investors may consider parking a small portion of their excess in these deposits. Going for the 30 and 36 month terms might be better. For one, you won’t be locked up for long periods of time. Second, these maturities offer an effective yield of 8 percent or more. These maturities offer slightly higher interest rates than Bajaj Finance’s FDs.
Of course, the longer maturities would get you better interest rates and coupons. However, with further rate hikes possible due to persistent inflation, investors must now avoid committing to very long maturities.
For those who need cash flows, the periodic payout option may be advisable. Others may choose the cumulative option.