The fixed deposit (FD) is a favourite investment avenue for Indians, and generally makes up a decent part of the investment portfolio.
Investors are familiar with FD products offered by banks and the Post Office. . In addition, NBFCs (Non-Banking Financial Companies) also offer FD products. The major feature that differentiates NBFC deposits from bank deposits is that the latter have DICGC (Deposit Insurance and Credit Guarantee) where deposits up to ₹5 lakh are insured. NBFCs do not have this security cover and therefore are considered riskier than bank deposits. Hence, a careful examination of the key metrics of the NBFC is necessary before making a deposit.
We have selected four major NBFCs based on AUM (Assets under Management) and credit rating. We have also picked them on the basis of Capital Adequacy Ratio (CAR) — the ratio of a lender’s capital in relation to its risk weighted assets. Net Interest Margin is the measure of the net interest income (interest earned – interest paid) as a percentage of average interest generating assets .
Housing Development and Finance Corporation Ltd (HDFC Ltd) has been a AAA rated organisation for over 28 years now. The company has ₹6,90,284 crore of AUM as of September 2022, the capital adequacy ratio was 22.5 per cent in September 2022 (22.8 per cent in March 2022). The Net Interest Margin in September 2022 was 3.4 per cent, lower marginally against 3.5 per cent in March 2022. The gross NPA has been seeing a declining trend — 1.59 per cent in September 2022, while in March 2022 and December 2021 it was 1.91 per cent and 2.32 per cent. HDFC launched a new product, Sapphire deposits, on its 45th anniversary with a tenure of 45 months and the annual and cumulative deposit offers an interest rate of 7.6 per cent per annum.
Bajaj Finance is a AAA rated NBFC with stable outlook. It has an AUM of ₹2,18,366 crore and CAR of 25.13 per cent as of September 2022. NIM was 3.2 per cent in September 2022 and in the range of 3.1 per cent to 3.2 per cent from January to September 2022. The Gross NPA was 1.17 per cent in September 2022 while the net NPA was 0.44 per cent. The gross NPA of Bajaj Finance has been on a steady decline from March 2022 onwards (1.6 per cent), which is now 43 basis points down. A similar trend has been observed in the case of Net NPAs — 0.68 per cent in March 2022 and 24 basis points down now. Bajaj Finance offers an interest rate of 7.7 per cent for tenure of 44 months; senior citizens get an additional 0.25 per cent. The depositor can also avail loan against deposits with Bajaj Finance.
Mahindra Finance is also a AAA rated NBFC. The company’s loan assets were ₹73,817 crore in September 2022 —16 per cent YoY growth and 9 per cent sequential growth. The CAR in September 2022 was 23.8 per cent while it was 25.9 per cent in June and 27.8 per cent in March of the same year. In H1 FY23 Mahindra Finance managed to maintain NIM at 7.7 per cent, which is higher than its peers’. Gross and net NPA in September 2022 was 6.7 per cent and 2.91 per cent. Mahindra Finance’s FD product, called Dhanvruddhi, offers 7.75 per cent for 42 months’ tenure.
Our fourth pick, Sundaram Finance, is also a AAA rated NBFC for nearly 30 years. AUM is 31,980 crore as of September 2022, which is around 8 per cent higher thanAUM of March 2022. CAR was 24.3 per cent in September 2022 and at 24.1 per cent in June and 24.2 per cent in March of the same year. The gross and Net NPA in September 2022 were 4.29 per cent and 2.97 per cent. The net profit of Sundaram Finance in H1 FY23 was ₹529.26 crore which is around 32 per cent higher YoY. Sundaram Finance offers interest rate of 7.5 per cent for 24 and 36 months. The NBFC offers an additional 0.5 per cent to senior citizens across tenures, making the effective interest rate up to 8 per cent for senior citizens.