NBFCs offer pockets of opportunity

Short-term interest rates have been revised downwards by quite a few banks in the past few weeks. For example, Karur Vysya Bank and Lakshmi Vilas Bank, which were earlier offering 9.5 per cent on 1-2 year deposits − the highest rate among all banks − now only give 9.25 per cent and 9.3 per cent, respectively. Similarly, Catholic Syrian Bank and City Union Bank have also lowered the rate they offer from 9.5 per cent previously.

With banks comfortable about liquidity, the room for short-term rates going up from here is limited. Besides, the changed tax treatment for one-to-three year investments in short-term debt funds and fixed maturity plans announced in the Budget also works in favour of banks. It gives the banks more freedom to keep the rates for fixed deposit of this tenure a bit lower without having to compete with the mutual fund industry to attract investor interest.

Other institutions, such as National Housing Bank, also revised their fixed deposit rates downwards last week.

In this light, investors looking to park their surplus for a short period of one year or a bit more have a window of opportunity in two NBFC deposits − PNB Housing Finance and HDFC Platinum Deposit Scheme. PNB Housing Finance offers 9.5 per cent interest on 1-year deposits. HDFC Platinum offers the same 9.5 per cent rate for a slightly longer tenure of 15 months. The FDs of both these companies come with the highest FAAA/MAAA rating from CRISIL/ ICRA. An ‘AAA’ rating implies the highest degree of safety regarding timely payment of interest and principal and the lowest risk.

Both the schemes offer cumulative and non-cumulative options. While PNB Housing pays out interest on a half-yearly basis under the non-cumulative scheme, HDFC Platinum has monthly, half-yearly and annual options. But the rates for HDFC Platinum’s non-cumulative options vary and are lower than the 9.5 per cent offered for the cumulative scheme.

Investors are advised to go in for the cumulative scheme. Here, the overall yield will be higher as the interest is reinvested. PNB Housing deposits are compounded on a half-yearly basis, while HDFC Platinum does annual compounding.

The minimum amount for investment in both these deposits is ₹20,000 under the cumulative scheme. The interest rate on the 12-15 month deposits offered by the banks is better than the 9.25 per cent interest on AAA-rated one-year deposits with Mahindra & Mahindra Financial Services, an NBFC.

Registered with the National Housing Bank, PNB Housing Finance is a subsidiary of Punjab National Bank.

HDFC is market leader in the home finance lending segment. The company reported a 15 per cent year-on-year growth in net profit to ₹1,345 crore in the June 2014 quarter.

Loans it made in the retail segment grew by 17 per cent in this period.

HDFC has been able to maintain stable asset quality, with gross non-performing assets at 0.55 per cent of its loans in the retail segment, down from 0.61 per cent last year.