The fixed-income space is getting more attractive with rising interest rates. Even though inflation is uncomfortably high, many bond and deposit options seem to have good payoffs for investors.
The country’s premier housing finance firm, HDFC, has just come out with new fixed deposit offerings for a tenor of 45 months. Interest rates are quite attractive. As always, HDFC’s deposits carry the highest AAA (stable) ratings from CRISIL and ICRA and are therefore quite safe. There are multiple interest payout options for investors. This special tenor deposit is open for a limited period – till October 31. Here is what you must know before investing in these FDs (fixed deposits).
Solid mortgage player
The planned merger of HDFC Bank and HDFC is in progress. After the merger, there are mutual benefits for both entities and significant synergies are expected. These include the availability of funds at lower costs, a much wider distribution network with HDFC Bank’s branches, easier origination of loans, operational efficiencies, and cross-selling opportunities.
This merger has no bearing on the fixed deposits offered by HDFC and is not a point of worry for investors.
HDFC has, over many decades, continued to grow at a healthy pace, maintain its margins, and restrict non-performing assets to manageably small levels. Here are a few other parameters that indicate the healthy financials of the company.
- Assets under management as of June 2022 was ₹671,400 crore, up 17 per cent over the same period in the previous fiscal.
- Nearly 80 per cent of the portfolio comprises loans to individuals, indicating strong retail focus.
- The Gross NPA (non-performing assets) ratio was at 1.78 per cent as of June 2022, down from 2.24 per cent in June 2021. RBI changed the norms for NPA stamping in November 2021. If this is factored in, the NPA ratio for June 2022 is only 1.68 per cent. This is among the lowest in the industry.
- Stage 2 and stage 3 assets are down to 6.5 per cent in June 2022, down steeply from 9.2 per cent in June 2021.
- The cost of borrowing in June 2022 was just 5.91 per cent, again among the lowest in the NBFC universe. The return on loans is a healthy 8.16 per cent, thus leaving a good spread of 225 basis points.
- Collection efficiency was reasonably strong at 99 per cent as of June 2022.
- HDFC sources 83 per cent of its loans directly, indicating the depth of its reach.
The company’s financials and key parameters are thus quite robust, with limited causes for concern.
What should investors do?
As mentioned earlier, investors have multiple interest payout options from HDFC’s fixed deposits – monthly, quarterly, half-yearly, and annual. There is a cumulative option as well. The interest rate on these choices ranges from 7.25 per cent to 7.5 per cent. Senior citizens will get 25 basis points of additional interest on these deposits. Applying online will fetch an additional 5 basis points for all applicants. The minimum deposit amount required is ₹40,000 for the monthly payout option. It is ₹20,000 for all the other choices and the cumulative FD as well.
Investors can take the cumulative option that gives 7.5 per cent interest, given that it is among the highest rates on offer for the 45-month tenor. Those seeking regular cashflows can opt for the annual interest payout option, which also pays 7.5 per cent interest.
All interest amounts are added to your income and taxed at the slab applicable to you. FDs from NBFCs are not covered by the deposit insurance scheme of the DICGC (under the RBI). But that is hardly a concern for an investor, given that HDFC’s deposits are among the safest.