Two leading NBFCs -Bajaj Finance and Shriram Finance -have hiked rates on term deposits following a slew of deposit rate hikes by banks in Q4 FY24.

While traditionally NBFCs offer higher deposit rates than banks, intensified competition for deposit accretion has forced NBFCs to compete with smaller private banks and small finance banks which have turned more aggressive on rates.

Currently, medium and small private banks are offering FD rates up to 8.5 per cent for regular citizens and up to 9.0 per cent for senior citizens, whereas small finance banks are giving interest of up to 9.25 per cent.

Bajaj Finance has increased FD rates for most tenures by up to 60 bps, effective April 3. FD rates have been hiked by up to 45 bps for deposits with a tenure of 25-35-months, by 40 bps for 18 and 22-month deposits, and by 35 bps for FDs with a tenure of 30 and 33 months.

For senior citizens FD rates have been hiked by up to 60 bps in the 25-35-month tenure and by 40 bps in the 18-24-month tenure. 

“Senior citizens can continue to avail FD rates of up to 8.85 perc ent and non-senior citizens can take benefit of rates of up to 8.60 per cent by booking digitally in the 42-month tenure,” the company said in a release.

Another NBFC Shriram Finance has raised FD rates by 5-20 bps across deposits maturing in 12 to 60 months. The rates effective April 9 go up to maturities that range between 12 and 60 months, effective April 9.

Deposits between 12 and 36 months will earn up to 7.85 per cent whereas those between 36 and 60 months will earn up to 8.8 per cent interest. Further, an additional 50 bps is being offered to senior citizens and 10 bps to women depositors. Effectively, senior citizen women investors can earn up to 9.4 per cent interest.

Fund raise

Like banks, NBFCs too are struggling to raise funds to support the sustained pace of credit growth. In addition to increased competition from banks for deposits, NBFCs have also seen normalisation in bank credit lines due to repeated warnings by the central bank on increasing inter-connectedness between the two sectors, making deposit accretion even more crucial.

While banks have been hiking rates through H2 FY24 on various maturity buckets, NBFCs have less flexibility in changing deposit rates. Further, a lot of these lenders were also waiting for the end of the quarter and the financial year to protect their margins for the reported period, analysts said.

Deposit growth for most private banks accelerated during Q4 to 14-26 per cent. Sequential deposit growth too was higher at 4-15 per cent compared with 2-8 per cent in the previous quarter, as per provisional numbers declared by banks. Small finance banks saw high growth of 24-50 per cent.