As the tax-saving season beckons, you scamper for suitable investments to lower your outgo. Among the many options available under section 80C of the Income Tax Act, fixed deposits of five-year tenor that qualify for deduction are quite popular. You can invest up to ₹1.5 lakh in such tax-saving deposits.

In this regard, DCB Bank’s tax saver fixed deposit offers an interest rate that is among the highest currently. The bank offers quarterly compounding of interest. There is also a quarterly interest payout option for depositors. All deposits to the tune of up to ₹5 lakh are covered by the RBI’s (Reserve Bank of India’s) DICGC (Deposit Insurance and Credit Guarantee Corporation) cover and are therefore safe.

Here are some key metrics that you must be aware of before investing in DCB Bank’s deposits.

Improving performance indicators

DCB Bank is a private sector lender focused on mortgages, SME, Agri and gold loans.

Some of the key financial and operational metrics of the bank have been improving over the past year or so.

-         Advances are up a healthy 17.9 per cent YoY as of Q2FY23 to ₹31,291 crore. Deposits have grown 16.3 per cent YoY over the same period to ₹36,960 crore.

-         CASA (current account savings accounts) ratio was at 29.3 per cent as of September 2022, compared to 25.4 per cent as of September 2021.

-         Capital adequacy ratio has declined a bit, but is still healthy at 17.9 per cent as of September 2021

-         Gross NPA has fallen to 3.89 per cent as of Q2FY22 from 4.73 per cent as of Q2FY22. Net NPA has declined over the same period to 1.54 per cent from 2.66 per cent.

-         The provision coverage ratio is up steeply from 60.5 per cent as of September 2021 to 72.8 per cent as of September 2022.

-         The yield on advances rose to 10.8 per cent as of Q2FY23 from 10.66 per cent in Q2FY22. The cost of funds fell to 5.87 per cent from 6.08 per cent over the same period. The net interest margin rose 51 basis points in the last one year to 3.88 per cent as of Q2FY23. The low cost of funds for DCB Bank is among the best in the industry.

Rising interest rates and the possibility of a slowing economy can affect the banking industry in general. In the case of DCB Bank, it can be said that it is reasonably resilient, given its healthy parameters.

Investing in the fixed deposit

DCB Bank offers 7.6 per cent interest on its tax-saver deposit. Senior citizens will get an additional 50 basis points or 8.1 per cent on the deposit.

These rates are among the highest, especially for tax-saving purposes. The minimum investment required is ₹10,000, while the maximum allowed is ₹1.5 lakh. Since the bank offers quarterly compounding, the final yield or annual return would be a tad higher (around 7.8 per cent).

You can also take a quarterly interest payout if needed.

Those in the 20 per cent or lower tax brackets would find the rate especially attractive, given the lower outgo. Given that the amount is also tax deductible, if your entire 80C investment is done via tax-saving fixed deposits, the overall effective returns would be higher.

Tax-saving deposits are for a five-year period. You cannot withdraw the fixed deposit before maturity. Also, if the deposit is opened in joint names, only the primary holder will get the tax benefit and not both the persons.

Given that the rates on offer for senior citizens are especially attractive, they can consider investing in the tax-saver deposits.

You can open deposits online, without having to open any savings account with DCB Bank. For KYC purposes, you will need both your PAN and Aadhaar for opening an online deposit.

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