Bajaj Finance and Shriram Finance revise FD rates: Should you invest?

In the first week of the new fiscal year (FY2025), the RBI maintained status quo on repo rates for the seventh consecutive time due to inflation concerns. While no one can predict the rate trajectory, the current rate environment presents an opportunity for risk-averse investors to lock into fixed deposit (FD) rates with longer tenures, which may be prudent to avoid reinvestment risk.

Although investors generally favour bank deposits, one can also consider FD products in stable NBFCs for higher rates and diversification. Amidst this backdrop, Bajaj Finance (AAA rated) and Shriram Finance (AA+ rated) recently revised their interest rates across various tenures effective from April 3 and 9, respectively.

Features

Bajaj Finance has increased FD rates by up to 60 bps across most tenures. While the interest rates for 2-3 and 3-5 year deposits are 7.8 per cent and 8.1 per cent, the 42-month special deposit scheme (called Bajaj Finance Digital FD) offers a higher rate of 8.6 per cent. The rate will be applicable only when the FD is booked through their website or app. Following suit, Shriram Finance has also increased its FD rates from 5 to 20 bps across tenures ranging from 12 to 60 months. The minimum amount to start an FD in Bajaj Finance and Shriram Finance is ₹15,000 and ₹5,000, respectively.

In the context of a 3-5 year tenure, Shriram Finance presents an attractive proposition with higher interest rates in comparison to Bajaj Finance. This disparity in rates reflects the higher risk associated with Shriram Finance, attributed to its lower credit rating. It should be noted that Shriram Finance does not offer a 48-month deposit option.

Alternatively, Suryoday Small Finance Bank (SFB) provides a higher interest rate of 9.01 per cent for a 60-month tenure, surpassing both NBFCs. However, it doesn’t offer an online option for opening an FD while these NBFCs provide end-to-end online processing. SFBs have DICGC cover of ₹5 lakh while NBFCs don’t. Despite that fact, it is essential to acknowledge the established track record and stable outlook of both Bajaj Finance and Shriram Finance. Therefore, they possess lower chances of credit default risk, needing no deposit cover.  

Passive income

Those wanting regular cash flows can opt for the non-cumulative option where the rates for the payout depend on the interest payment frequency chosen by the depositor. Generally, four interest payment frequencies are available — monthly, quarterly, half-yearly, and yearly. Further, senior citizens will get an additional 25 and 50 bps interest over the standard rate in Bajaj Finance and Shriram respectively, making it quite attractive for elders. Particularly in Shriram Finance, women depositors can also receive additional interest of 0.10 per cent.

Under the monthly frequency, senior citizens opting for Bajaj Finance FD will get an interest rate ranging at 7.39-8.05 per cent for regular deposits and 7.77-8.51 per cent for special deposits. Other AAA-rated NBFCs, such as Mahindra Finance, offer rates for senior citizens ranging at 7.45-7.75 per cent in Samruddhi Deposits with an additional 0.35 per cent for retired employees and their relatives.

On the other hand, Shriram Finance, with lower credit rating than Bajaj Finance, offers higher rates ranging 7.59-8.47 per cent for the monthly interest payout option. Effectively, senior citizen women investors going for the auto renewal option can earn an interest of 9.32 per cent per annum for 50/60-month tenures.

Other details

Investors interested in initiating an FD with these NBFCs have the option to either visit their physical offices or access their websites to provide necessary details such as investment amount, chosen tenure, and preferred payout frequency, along with undergoing the Know Your Customer (KYC) process. Moreover, depositors have the opportunity to utilise their FD as collateral for availing loans, subject to the condition that the FD has been active for a minimum of three months.

Bajaj Finance extends loans of up to 75/60 per cent of the deposit value for cumulative/non-cumulative options, whereas Shriram Finance offers loans ranging at 90-95 per cent of the deposit value. The interest applicable on such loans would be 2-5 per cent more than the interest on the deposit. Additionally, although premature withdrawal of the FD is permissible after a lock-in period of three months, depositors should be aware that such premature liquidation incurs a penalty.

What should investors do?

At present, interest rates are hovering near their peak, with numerous macroeconomic factors poised to influence their future trajectory. In light of this uncertainty, opting for FDs offered by either of these NBFCs for the medium to long term is prudent. While Shriram Finance entails slightly higher risk than Bajaj Finance, investors can decide depending on their risk appetite and available investment tenure. Therefore, those who already possess exposure to SFB can allocate surplus funds to these NBFCs for a tenure of 3-5 years for diversification purposes.

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