Fixed deposit rates have been rising steadily ever since the RBI started increasing the repo rate over the past few months. And leading non-banking financial companies (NBFCs) are offering deposits at attractive rates.
Shriram Transport Finance Company (STFC)offers FDs with tenors ranging from 18-60 months, with the interest rate on offer going up to 8 per cent. Senior citizens get a bit more than that. The 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.
Are these rates attractive? Here’s what you must know before investing in STFC’s fixed deposits (FDs).
Upping the ante on rates
It has been a while since any bank or NBFC offered 8 per cent interest on its FD. Shriram Transport Finance offers 8 per cent interest on deposits with a 60-month tenor. Since the interest is calculated based on monthly rests, the yield works out to around 8.3 per cent.
Deposits with tenors ranging from 18-60 months are available. There are cumulative and non-cumulative options. There are four pay-out frequencies available under the non-cumulative option – monthly, quarterly, half-yearly and yearly. Investors should choose the mode based on their cashflow requirements.
The cumulative option is for investors who do not need regular cashflows and would like to benefit from the compounding of interest. The minimum deposit amount is Rs 5,000.
Senior citizens will get an additional 50 basis points interest, making it quite attractive for elders.
Two points must be noted here. Deposits from NBFCs do not get deposit insurance to the tune of Rs 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.
STFC on comeback trail
The vehicle financier is getting back on track in the post-COVID period and key metrics are improving.
- The assets under management were up 9.5 per cent YoY in June 2022 at Rs 130,689 crore
- Collection efficiency was at 101.45 per cent in June 2022, compared to 91 per cent in June 2021
- Gross stage-3 assets fell 6.18 per cent YoY to Rs 9,062 crore. Net stage-2 assets fell a steeper 18.7 per cent to Rs 4,384 crore.
- Capital to risk (weighted) assets ratio, CRAR, was healthy at 22.54 per cent as of June 2022
- Liquidity coverage ratio was healthy at nearly 192 pe cent
All these metrics lend a reasonable level of comfort on the business front.
With the automobile sector – both passenger and commercial vehicles segments – on an uptrend, STFC should see its prospects brighten over the next few years. Shriram City Union Finance and STFC are to merge. With Shriram City Union Finance also offering FDs at the same rates and tenors, investors may stick to STFC’s deposits for now.
What should investors do?
Investors can consider parking a small portion of their surplus in these deposits, given the relatively higher interest rates on offer. Going for the 30 and 36-month tenors may be better. For one, you will not be locked in for longer periods. Second, these tenors offer an effective yield of 8 per cent or more. These tenors offer rates a tad higher than Bajaj Finance’s FDs.
Of course, the higher tenors would fetch you better interest and coupon. But given that more interest hikes are possible due to stubborn inflation, investors must avoid locking into very high tenors now.
For those needing cashflows, the period payout option may be advisable. Others can take the cumulative option.