The cut in long-term deposit rates by State Bank of India last week signals that interest rates on deposits are likely to fall sooner than later. Investors should take advantage of the current window of opportunity to lock into quality deposit options. HDFC Platinum deposits are a good option for investors seeking safety with reasonable returns.
We recommend the 33-month deposit, which provides an annualised return of 9.75 per cent per annum on the cumulative option. The deposit also offers an interest payout option.
Why HDFC deposits
We recommend these deposits for investors with low risk-appetite. The largest housing financing company in India, HDFC’s risk profile (with the highest credit rating of AAA) is better than most banks and financial institutions. While bank deposits up to Rs 1 lakh are insured, investors should consider this deposit for any surpluses beyond Rs 1 lakh.
Additionally, the 9.75 per cent return on the 33-month option is also better than that offered by most banks on similar tenures at 9- 9.25 per cent. Among non-banking finance companies, AAA-rated ones like LIC Housing Finance offer 9.5 per cent on three-year maturity.
Higher rates are currently available only from finance companies with lower credit ratings.
For a 10-, 20- and 30 per cent tax brackets, the post-tax yields will work out to 8.75 per cent, 7.75 per cent and 6.75 per cent respectively. An additional 25 basis points interest is provided for senior citizens. Senior citizens also have a monthly pay-out option, but as the rate of interest is lower at 9.65 per cent this deposit can only be a diversifier to other deposit options.
About HDFC
HDFC has loans under management worth Rs 1.48 lakh crore with individual housing loans accounting for two-thirds of the loan book. It has a capital adequacy ratio of 14.6 per cent. The standalone net profit of HDFC for the year ended March 2012 and the quarter ended June 2012 were Rs 4,122 crore and Rs 1,001 crore respectively.
It has an average loan-to-value of 65 per cent (at origination) which provides adequate cushion from default. Its gross non-performing asset ratio is at 0.74 per cent and has very conservative provisioning for non-performing assets.