If you are a fixed income investor in search of higher rates, and are comfortable going beyond bank fixed deposits, then NBFC deposits are an option you can consider.

Many NBFCs (non-banking financial companies) are offering higher rates than most private and public sector banks on fixed deposits of comparable tenures, of course, for the higher risk they entail.

However, unlike bank deposits that are insured for an amount up to ₹5 lakh by the Deposit Insurance and Credit Guarantee Corporation, NBFC deposits enjoy no such protection.

It therefore, makes sense to restrict yourself only to the deposits of NBFCs with strong financials.

Today, interest rates are at near bottom and are expected to go up, though not anytime soon.

The RBI left the repo rate unchanged yet again in the latest monetary policy review on August 6, 2021.

Two-year fixed deposits, that offer better rates than lower tenure deposits without locking-in your money for too long, can therefore, be a good choice.

What’s on offer

Bajaj Finance offers 6.10 per cent per annum on its two-year cumulative FD and non-cumulative FD (with an annual interest pay-out option). This is better than the 5.1 – 5.2 per cent and 5.0 – 5.5 per cent respectively offered by several public and private sector banks.

The Bajaj Finance FD rates are a tad lower than those offered by other NBFCs such as Mahindra & Mahindra Financial Services (6.2 per cent) and Shriram Transport Finance (6.54 per cent) on their similar deposits.

But Bajaj Finance’s strong financials, among the best in the sector, offer ample comfort to investors.

The deposits enjoy the highest ratings — CRISIL’s FAAA/Stable and ICRA’s MAAA (stable).

Senior citizens, that is, those aged 60 or above get an additional 0.25 per cent on the Bajaj Finance FD. Those booking an online FD get an additional 0.10 per cent. This does not apply to senior citizens. You must invest a minimum of ₹25,000 in the FD.

Strong financials

Bajaj Finance has a well-diversified loan book spread across consumer, rural, SME and commercial loans.

As of June-end 2021, consumer loans accounted for 44 per cent of the lender’s loan book of ₹1.6 lakh crore. With a presence in over 3,100 locations, the non-bank lender is geographically well-diversified too. The loan book registered a year-on-year growth of 15 per cent growth in the June 2021 quarter.

Adequate buffer

As of June-end 2021, Bajaj Finance’s net NPAs (non-performing assets) were only 1.46 per cent.

While this is higher than the 0.5 per cent in the June 2020 quarter, the previous year’s numbers are not comparable due to the then ongoing moratorium.

Also, Bajaj Finance’s capital to risk weighted assets ratio (CRAR) of 28.57 per cent is well above the mandated 15 per cent, providing adequate buffer against any future bad loans.

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