PNB Housing Finance: Lock into attractive interest rates

Despite the banking regulator RBI cutting interest rates twice this year, fixed-income investors still have a few avenues to lock into deposits of high-quality non-banking finance companies.

The fixed-deposit schemes of NBFCs tend to offer higher interest rates than those of banks. Of course, the risks are a tad higher in NBFC deposits, given that they are not insured. Bank deposits of up to ₹1 lakh are insured, which acts as a safety net.

Choosing the right NBFC becomes important for conservative depositors.

Safe avenue

In this context, the FD scheme from PNB Housing Finance (PNB HF) offers a good blend of attractive interest rates and a very high degree of safety to depositors. The company’s deposit is rated FAAA (stable) by CRISIL, and AAA by CARE, indicating the highest degree of reliability and safety with regard to servicing of financial obligations — interest and principal repayments.

PNB HF offers two options for its FD scheme — non-cumulative and cumulative. The non-cumulative option offers interest payout on a monthly, quarterly, half-yearly and annual basis. Interest is credited to the customer’s bank account electronically.

The company offers FDs with tenures of 12-120 months. PNB HF also offers deposits for special tenures of 15, 22, 30 and 44 months.

Interest rates are fairly attractive, at 8.25-8.45 per cent for cumulative deposits and 7.95-8.45 per cent for the non-cumulative option.

Senior citizens will get additional 25 basis points in these FDs.

The rates for the 44- and 60-month tenures are similar to those offered by the post office Senior Citizen Savings Scheme (SCSS) on a pre-tax basis. Senior citizens who have exhausted their SCSS limit and other options such as deposits of small finance banks can consider the PNB HF deposit as a diversifier and park a small portion of their surplus in it.

Depositors can consider investing for tenures of 44 months and 60 months, as rates are quite attractive in that bucket. If you require liquidity and cash flow, you can opt for the non-cumulative option to generate regular interest payouts.

Depositors who do not need regular interest payout can opt for the cumulative option to gain from the benefits of compounding. The minimum investment required is ₹10,000 for the cumulative as well as almost all the non-cumulative options. For the monthly payout choice alone, the minimum investment required is ₹25,000.

PNB Housing Finance is a leading provider of home loans. It offers loans for house purchase and residential plots, apart from giving loans against properties. It also offers lease rental discounting, corporate term loans and non-residential premises loans.

The company made disbursements of ₹27,518 crore in the nine months of FY19, a growth of 13 per cent over the same period in the previous fiscal. Its assets under management outstanding portfolio as of December 2018 stood at ₹79,737 crore, an increase of 38 per cent YoY.

The return on equity has increased to 16.2 per cent in the nine months of FY19, up from 13.3 per cent for the same period in FY18. The net non-performing assets ratio is well under control at 0.37 per cent as of December 2018.

The deposit interest is fully taxable at the slab rate of the depositor. NBFCs deduct TDS if the interest amount exceeds ₹5,000 in a financial year.

Addendum

PNB Housing Finance has informed the exchanges on Tuesday (April 30) that CARE has placed the company on "credit watch with developing implications." This move does not change our recommendation at present. But investors need to take note of the development.