After a series of interest rate hikes, the Reserve Bank of India (RBI) hit the pause button, albeit temporarily. Though further rate hikes cannot be ruled out if inflation remains sticky, especially in the light of increasing crude oil prices, the general opinion is that we may be close to the peak of the interest rate cycle.

Most banks and non-banking financial companies (NBFCs) have been increasing rates in deposits over the past 10 months, to reflect RBI’s moves. There are now deposits available with rates in excess of 8 per cent for the medium term and look attractive.

In this light, the new 50-month Jubilee deposits offered by Shriram Finance to commemorate the group’s golden jubilee looks inviting for the general depositors.

The offering is made further attractive with higher deposit interest for senior citizens and women. These deposits are rated AA+ (stable) by ICRA and AA+/Stable by India Ratings and Research, indicating reasonable safety in servicing the principal and interest components of the deposits.

Here’s what you must know before investing in Shriram Finance’s fixed deposits (FDs):

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Better rates on offer

The NBFC’s deposit comes in many tenors. But it has recently come up with a 50-month deposit that is particularly attractive. It has been a while since any bank or NBFC offered 8 per cent interest on its FD.

Shriram Finance is offering 8.18 per cent interest on the 50-month deposit in the cumulative option. Given that the interest is calculated based on monthly rests, this works out to an effective rate of 8.5 per cent annually. Those desiring the compounding effect, would find the option suitable.

For those wanting regular cash flows, there are four interest payment frequencies available under the non-cumulative option — monthly, quarterly, half-yearly and yearly. Investors must choose the mode based on their income requirements.

The rates for the non-cumulative option depend on the interest payment frequency chosen by the depositor. Currently, the interest rates range from 8.18 per cent for monthly payouts to 8.5 per cent for the yearly interest option. The minimum deposit amount is ₹5,000. A deposit of ₹5,000 will have a maturity value of ₹7,025 under the cumulative option.

Senior citizens will get an additional 50 basis points (bps) interest over the standard rate making it quite attractive for elders. Women folk will get an additional 10 bps interest. Women senior citizens will get 60 bps extra.

Two points must be noted here. Deposits from NBFCs do not get the deposit insurance to the tune of ₹5 lakh offered by the DICGC, a division of the RBI. The entire interest component is added to your income and taxed at the slab applicable to you.

Shriram Finance (earlier as Shriram Transport Finance) has a long track record of offering deposits and servicing obligations on time. Therefore, the absence of deposit insurance isn’t a dampener.

The rates on offer are higher than what other NBFCs with AAA rating such as HDFC, Bajaj Finance and M&M Financial Services currently offer for around similar tenors.

Stable financials

Earlier in the financial year FY23, Shriram City Union Finance and Shriram Capital merged with Shriram Transport Finance. Therefore, the financials of the previous fiscal with the earlier one may not be strictly comparable.

  • The interest income for the nine months of FY23 was up 55.2 per cent over 9M FY22 at ₹14,126.3 crore.
  • The net interest margin on assets under management are healthy at 8.31 per cent in 9M FY23, compared to 6.49 per cent in 9M FY22.
  • The total Capital to risk (weighted) assets ratio (CRAR) was healthy and stable at nearly 23 per cent levels as of December 2022.
  • Gross stage 3 assets (loans overdue beyond 90 days) percentage fell to 6.29 per cent from 8.4 per cent earlier, over this period. Net stage 3 assets declined to 3.2 per cent from 4.36 per cent.
  • Key commercial and passenger vehicle segments have witnessed sharp double-digit growth in AUM in recent quarters.

Shriram’s performance on such key parameters lend comfort in its financial and business prospects.

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