Tata Motors, India’s biggest automobile company this year in August had launched revised fixed deposit scheme and company has raised Rs 264 crore through this scheme. Company has the permission to raise Rs 1,300 crore from the revised scheme
The rate at which the market has retorted to the revised fixed deposit scheme has narrowed considerably, especially in comparison to its previous deposit scheme, when the company had collected Rs 2,700 crore in nine months.
Previously the amount was raised on higher payment of interest rates, which the company has now revised to downwards by 325 basis points to 8.75 per cent for a period of three years.
From the earlier FD scheme the Tata Motors was able to raise an average of Rs 300 crore per month, when deposit schemes of other companies were struggling. According company annual report the FD scheme was launched to cater the funding requirement of the company.
In November last year when company launched the scheme it offered 11 per cent interest rate for a period of three years on a minimum amount of Rs 20,000. In August the company revised interest rate to 8.75 per cent keeping in order to similar cut in FD’s offered by banks.
According to Tata Motors spokesperson, “Tata Motors had introduced a fixed deposit scheme, under which we could raise about Rs 2,700 crore. We did raise that amount. On the date of the annual general meeting (AGM) this year (August 25, 2009), we renewed our FD scheme. The company is now authorised to raise about Rs 4,000 crore. Since August 25, Tata Motors has raised about Rs 264 crore.”
According to market experts the Tata Motors launched first FD scheme at the time when liquidity in the market was very low and people preferred to save their income than spending it. As the company offered higher interest rate than most fixed deposit scheme of banks and, also carried the brand name Tata, it got a favorable response from the market.
Moreover the revised rate offered by Tata Motors is still higher than most banks, including ICICI bank, HDFC bank and State Bank of India, which are offering 6-7 per cent interest for the comparable terms.
As per the norms, Tata Motors can float its current FD scheme till the next AGM or till it meets the Rs 4,000 crore target.
Recently the company has cleared the $3 billion debt it had taken to buy the two UK-based brands of Jaguar and Land Rover, thus it has the option of not to stock on the FD scheme a lot. It aims to use the funds for day-to-day operations, including catering of the working capital requirement.
Monday, November 23, 2009
Friday, November 13, 2009
IDBI Bank, Central Bank announces cut in deposit rates by 0.25-0.5 per cent
Central Bank of India and IDBI Bank- two state-owned banks have slashed deposit rates by 0.25-0.5 per cent in various maturities in order to bring down the cost of funds.
Before country’s largest lender State Bank of India has reduced its deposit rates by a similar margin.
IDBI Bank revised rates will be effective from November 16 while the Central Bank has to yet announce the rate reduction officially.
After revision on one year to less than two years maturity deposits IDBI Bank offers a rate of 6.5 per cent as against 6.75 per cent, informed IDBI Bank sources.
On tenure 2 years to less than 1,100 days deposits, bank will offer rate of 7 per cent (7.25 per cent) while that of 1,100 days maturity deposits will now attract a rate of 7.25 per cent (7.5 per cent) earlier.
Moreover on 1,100-days to 5 years, 5-years to 7-years and 7-years to 10-years deposits bank will offer 7 per cent (7.25 per cent), 7.5 per cent (7.75 per cent) and 7.75 per cent (8 per cent) earlier, the bank said.
The bank said senior citizens will get 0.5 per cent above the card rate.
Before country’s largest lender State Bank of India has reduced its deposit rates by a similar margin.
IDBI Bank revised rates will be effective from November 16 while the Central Bank has to yet announce the rate reduction officially.
After revision on one year to less than two years maturity deposits IDBI Bank offers a rate of 6.5 per cent as against 6.75 per cent, informed IDBI Bank sources.
On tenure 2 years to less than 1,100 days deposits, bank will offer rate of 7 per cent (7.25 per cent) while that of 1,100 days maturity deposits will now attract a rate of 7.25 per cent (7.5 per cent) earlier.
Moreover on 1,100-days to 5 years, 5-years to 7-years and 7-years to 10-years deposits bank will offer 7 per cent (7.25 per cent), 7.5 per cent (7.75 per cent) and 7.75 per cent (8 per cent) earlier, the bank said.
The bank said senior citizens will get 0.5 per cent above the card rate.
Wednesday, November 11, 2009
Banks focusing on recurring deposits to garner long-term resources
Although top bankers are calling out for the need to increase low cost current and savings account (CASA) deposits, on the other hand they have asked their branches to speed up the process acquire long-term resources under recurring deposit (RD) schemes.
It is not difficult to find out the reason why banks are moving their focus on RDs. Although CASA deposits are low cost, but they are not stable as customers can withdraw funds any time. Whereas in RD scheme customer withdraw amounts ranging from a minimum of Rs 50 to a maximum of Rs 10,000 a month and receive a lump sum on maturity, which provides stability to a bank’s resource base.
Earlier RD scheme went out off the sight of banks because of increasing competition among banks to acquire CASA deposits.
In spite of the fact that term deposit rates apply to RDs and interest is compounded quarterly, bankers claim that long-term resources collected under the RD schemes can somewhat handle asset-liability mismatches and also help in financing infrastructure projects.
Some of the banks such as Corporation Bank, Union Bank of India, Bank of India and Central Bank of India, in the last few months have started refocusing on RDs. At present, the RD portfolios of most of the banks, public, private or foreign, have nothing to write about.
However RDs can be related to systematic investment plans floated by mutual funds, leaving latter’s attendant risks. A salaried depositor can build up savings for child’s education, daughter’s marriage, retirement, etc. by maintaining savings discipline. Some banks even allow inconsistent installments.
For instance, a 60-month RD with a bank at a monthly installment of Rs 1,375 per month will give a depositor Rs 100,890 at maturity (interest rate 7.25 per cent, compounded quarterly). Also, interest earned on the amount is exempted from tax deduction at source.
In April 2009, Corporation bank a Mangalore based lender had launched ‘Lakhpati RD scheme’, it is marketing it in a big way to wipe up long-term resources of 5-10 years duration, informed the Chairman and Managing Director, Mr J.M. Garg.
The bank has been able to manage to collect about Rs 100 crore every month ever since the scheme’s launch. The bank is looking for doubling the monthly collection to Rs 200 crore by signing up two lakh customers for the scheme (as against 90,000 now) by March-end 2010.
On the other hand Bank of India is pushing up its branches to promote the RD scheme. Mr A.A. Badshah, General Manager, pointed out, “We can gauge a customer’s behavior by his savings discipline. If a RD account holder is regular in depositing his/ her installment, say for two-three years, we can then cross-sell our loans. It is unlikely that such a customer will default on loans.”
While Union Bank of India’s Union Monthly Plus RD scheme, which was launched six months back, has been able to collect about Rs 400 crore through 3 lakh accounts. According to Mr S. Govindan, General Manager, “Our RD deposit base at around Rs 500 crore could be termed negligible when compared with our total deposit base of over Rs 1 lakh crore. However, with our new scheme we want to grow our RD base to 10 per cent of the total deposit base over the next few years”.
Central Bank of India is also planning to launch an RD product along with an accident insurance feature later this month.
It is not difficult to find out the reason why banks are moving their focus on RDs. Although CASA deposits are low cost, but they are not stable as customers can withdraw funds any time. Whereas in RD scheme customer withdraw amounts ranging from a minimum of Rs 50 to a maximum of Rs 10,000 a month and receive a lump sum on maturity, which provides stability to a bank’s resource base.
Earlier RD scheme went out off the sight of banks because of increasing competition among banks to acquire CASA deposits.
In spite of the fact that term deposit rates apply to RDs and interest is compounded quarterly, bankers claim that long-term resources collected under the RD schemes can somewhat handle asset-liability mismatches and also help in financing infrastructure projects.
Some of the banks such as Corporation Bank, Union Bank of India, Bank of India and Central Bank of India, in the last few months have started refocusing on RDs. At present, the RD portfolios of most of the banks, public, private or foreign, have nothing to write about.
However RDs can be related to systematic investment plans floated by mutual funds, leaving latter’s attendant risks. A salaried depositor can build up savings for child’s education, daughter’s marriage, retirement, etc. by maintaining savings discipline. Some banks even allow inconsistent installments.
For instance, a 60-month RD with a bank at a monthly installment of Rs 1,375 per month will give a depositor Rs 100,890 at maturity (interest rate 7.25 per cent, compounded quarterly). Also, interest earned on the amount is exempted from tax deduction at source.
In April 2009, Corporation bank a Mangalore based lender had launched ‘Lakhpati RD scheme’, it is marketing it in a big way to wipe up long-term resources of 5-10 years duration, informed the Chairman and Managing Director, Mr J.M. Garg.
The bank has been able to manage to collect about Rs 100 crore every month ever since the scheme’s launch. The bank is looking for doubling the monthly collection to Rs 200 crore by signing up two lakh customers for the scheme (as against 90,000 now) by March-end 2010.
On the other hand Bank of India is pushing up its branches to promote the RD scheme. Mr A.A. Badshah, General Manager, pointed out, “We can gauge a customer’s behavior by his savings discipline. If a RD account holder is regular in depositing his/ her installment, say for two-three years, we can then cross-sell our loans. It is unlikely that such a customer will default on loans.”
While Union Bank of India’s Union Monthly Plus RD scheme, which was launched six months back, has been able to collect about Rs 400 crore through 3 lakh accounts. According to Mr S. Govindan, General Manager, “Our RD deposit base at around Rs 500 crore could be termed negligible when compared with our total deposit base of over Rs 1 lakh crore. However, with our new scheme we want to grow our RD base to 10 per cent of the total deposit base over the next few years”.
Central Bank of India is also planning to launch an RD product along with an accident insurance feature later this month.
Fixed Deposit rates can increase
In the recent credit policy review of the Reserve Bank of India (RBI) there were indications of rising interest rate which is good news for those who prefer to invest in fixed deposits. The central bank has given indications that in the coming days the rates can be tighten up and its impact can be seen in the first quarter of the next year.
In year 2009 various changes could be seen in the interest rate cycles and the rates were under the scrutiny of the central bank throughout the year. However the incentive packages introduced for the revival of financial markets brought down the rates nearly to zero levels in most economies but the in the domestic market the decline of rates was not major. It was only by a couple of percentage points that the domestic deposit rates had reduced during the first half of the current year.
It was government’s aggressive borrowing that was responsible in slowing down the fall and this was visible in the poor performance of income funds. Although it was observed that lack of fall or even the steady rise in long term paper rates have been responsible to bring changes in the performance of income funds.
In the near future there will not be much change in the scenario as RBI has indicated tightening of rates. Thus, those who have invested in income funds in the recent time will continue to face the tough times.
But rise in rates is definitely be a good news for the investors who prefer fixed deposits. In the last few quarters the rates had started falling, at present are not in the revival mode but can reverse in early to middle of 2009. Therefore the investors who like to invest their funds in fixed deposits can wait for few months to make the investments.
On the other hand if you invest funds in floaters it is not bad as they automatically take note of the changing interest rate scenario. As the inflation is also moving upwards, there are chances of the general interest rates to move up.
In case you are taking loan then the upcoming scenario is not going to be comfortable as rising rates will again push up the borrowing costs. The immediate impact could be seen on the products like personal loans and car loans although on the latter one the borrowers can get relief from manufactures side.
The recent change in the auto sector has again revived the hopes for the sector and the increasing competition in the passenger car segment can force OEMs to offer discounts. Such discounts can be in the form of subsidized interest rates as is given during boom times.
But for the two-wheeler segment the scenario is different due to high margin pressure in this segment. Moreover the loan ticket size is small therefore the competition amongst the lenders is restricted to a few players. Therefore, buyers might not get huge discount offers.
Meanwhile the home loan borrowers might have an escape from the pressures of high borrowing costs as the RBI is believed to be looking at supporting sector. There is news that banks will probably increase the share towards the priority sector lending and property loans can be a bigger chunk for the banks. This can help in reversing the ill effects of rising borrowing costs and shall help the customer base in a big way.
In year 2009 various changes could be seen in the interest rate cycles and the rates were under the scrutiny of the central bank throughout the year. However the incentive packages introduced for the revival of financial markets brought down the rates nearly to zero levels in most economies but the in the domestic market the decline of rates was not major. It was only by a couple of percentage points that the domestic deposit rates had reduced during the first half of the current year.
It was government’s aggressive borrowing that was responsible in slowing down the fall and this was visible in the poor performance of income funds. Although it was observed that lack of fall or even the steady rise in long term paper rates have been responsible to bring changes in the performance of income funds.
In the near future there will not be much change in the scenario as RBI has indicated tightening of rates. Thus, those who have invested in income funds in the recent time will continue to face the tough times.
But rise in rates is definitely be a good news for the investors who prefer fixed deposits. In the last few quarters the rates had started falling, at present are not in the revival mode but can reverse in early to middle of 2009. Therefore the investors who like to invest their funds in fixed deposits can wait for few months to make the investments.
On the other hand if you invest funds in floaters it is not bad as they automatically take note of the changing interest rate scenario. As the inflation is also moving upwards, there are chances of the general interest rates to move up.
In case you are taking loan then the upcoming scenario is not going to be comfortable as rising rates will again push up the borrowing costs. The immediate impact could be seen on the products like personal loans and car loans although on the latter one the borrowers can get relief from manufactures side.
The recent change in the auto sector has again revived the hopes for the sector and the increasing competition in the passenger car segment can force OEMs to offer discounts. Such discounts can be in the form of subsidized interest rates as is given during boom times.
But for the two-wheeler segment the scenario is different due to high margin pressure in this segment. Moreover the loan ticket size is small therefore the competition amongst the lenders is restricted to a few players. Therefore, buyers might not get huge discount offers.
Meanwhile the home loan borrowers might have an escape from the pressures of high borrowing costs as the RBI is believed to be looking at supporting sector. There is news that banks will probably increase the share towards the priority sector lending and property loans can be a bigger chunk for the banks. This can help in reversing the ill effects of rising borrowing costs and shall help the customer base in a big way.
Friday, November 6, 2009
Banks witness increase in low-cost deposits
Banks are experiencing increase in flow of funds in low-cost deposits rather than in bulk deposits.
The reason for increase in the share of low –cost Casa deposits is mainly because of revival in stock markets, economic activity and a fall in term-deposit rates.
As per the latest reports from banks, in most of the public sector banks there has been increase of 20 per cent in the low-cost deposits during the current financial year (2009-10). Whereas during the second half of 2008-09, in Casa deposits flow of funds was low to some extent because of high deposit rates, thus for most of the banks the share of these deposits got reduced. The banks started reducing deposit rates which fell to 6.25-7.5 per cent from 8.75-10.5 per cent, therefore individuals started looking for other investment options rather than investing funds in fixed deposits.
However on current account balances banks do not give any interest, while on savings accounts banks give 3.5 per cent a year.
The increased flow of funds in Casa has helped some of the banks such as ICICI Bank, the country’s largest private sector bank, to increase their Casa base. During July-September alone, ICICI Bank Casa base had increased by Rs 9,000 crore. The reason for increase in the share of Casa in total deposits was mainly due to decline in the deposit base as the bank avoided high-cost deposit from companies. The bank said in spite of rejecting or retiring bulk deposits, the mix between retail and Casa deposits still stand to 50-50.
The sources said focus to increase Casa, by taking certain measures such as higher minimum balance for savings bank accounts, was not completely responsible, it was due to companies moving towards markets for initial public offers (IPO) and assigning to institutional investors (QIPs), funds were transferred to the banking system for a few days. “This was one factor but not the only factor,” ICICI Bank told analysts.
Moreover the banks which saw fall in the flow of funds from sectors such as real estate and gems & jewellery as a result of financial crisis, are witnessing revival of sorts. In the real sector the funds have started flowing due to launch of new projects, gems & jewellery sector is on the path of recovery, an executive with a private sector bank said.
In the public sector banks such as Bank of India, Punjab National Bank and Bank of Baroda there has been 8-10 per cent growth in Casa till September over March. While Union Bank saw the highest growth in Casa in the first six months at 17.8 per cent with Casa accounting for 71 per cent of the incremental deposits since March.
State Bank of India (SBI) country’s largest lender Casa share in total deposits stood at 40.96 per cent at the end of September, the increase of 126 basis points (bps) over the same period of the previous year.
The increase in Casa funds in public sector banks was possible because the government had asked PSBs to provide growth targets for low-cost deposits in their statement of intent for 2009-10. This is the first time such a step was taken, as in previous years the government used to look for overall deposit growth targets. The increase in Casa was mainly done to ensure that banks can keep their cost of funds low, which help the government to bring down the lending rates.
In the recent months, the Reserve Bank of India (RBI) has also shown its concern on the falling level of Casa as banks over the last few years mainly depended on high-cost bulk deposits the funds coming in from companies, including public sector entities.
Over the years, there has been decline in the public sector banks share of Casa in total deposits, which has reduced from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.
“There was a cut in spending in this year and increase in the propensity to save. This was mainly because interest rate on fixed deposits came down drastically and the depositors did not want to lock in their funds in fixed deposits,” a senior executive of a public sector bank said.
In the last one year banks have reduced deposit rates more than 300bps. For instance SBI is offering 6.25 per cent for one-year deposit; a year ago it was as high as 10.5 per cent.
The extension of branches has also helped banks in increasing the low-cost deposits. For instance during the first six months, SBI and Union Bank of Indian have opened 500 and 160 branches, respectively, have been benefited from the expansion.
According to bankers as the public and private sector banks are expanding their branches the share of Casa is likely to rise further.
The reason for increase in the share of low –cost Casa deposits is mainly because of revival in stock markets, economic activity and a fall in term-deposit rates.
As per the latest reports from banks, in most of the public sector banks there has been increase of 20 per cent in the low-cost deposits during the current financial year (2009-10). Whereas during the second half of 2008-09, in Casa deposits flow of funds was low to some extent because of high deposit rates, thus for most of the banks the share of these deposits got reduced. The banks started reducing deposit rates which fell to 6.25-7.5 per cent from 8.75-10.5 per cent, therefore individuals started looking for other investment options rather than investing funds in fixed deposits.
However on current account balances banks do not give any interest, while on savings accounts banks give 3.5 per cent a year.
The increased flow of funds in Casa has helped some of the banks such as ICICI Bank, the country’s largest private sector bank, to increase their Casa base. During July-September alone, ICICI Bank Casa base had increased by Rs 9,000 crore. The reason for increase in the share of Casa in total deposits was mainly due to decline in the deposit base as the bank avoided high-cost deposit from companies. The bank said in spite of rejecting or retiring bulk deposits, the mix between retail and Casa deposits still stand to 50-50.
The sources said focus to increase Casa, by taking certain measures such as higher minimum balance for savings bank accounts, was not completely responsible, it was due to companies moving towards markets for initial public offers (IPO) and assigning to institutional investors (QIPs), funds were transferred to the banking system for a few days. “This was one factor but not the only factor,” ICICI Bank told analysts.
Moreover the banks which saw fall in the flow of funds from sectors such as real estate and gems & jewellery as a result of financial crisis, are witnessing revival of sorts. In the real sector the funds have started flowing due to launch of new projects, gems & jewellery sector is on the path of recovery, an executive with a private sector bank said.
In the public sector banks such as Bank of India, Punjab National Bank and Bank of Baroda there has been 8-10 per cent growth in Casa till September over March. While Union Bank saw the highest growth in Casa in the first six months at 17.8 per cent with Casa accounting for 71 per cent of the incremental deposits since March.
State Bank of India (SBI) country’s largest lender Casa share in total deposits stood at 40.96 per cent at the end of September, the increase of 126 basis points (bps) over the same period of the previous year.
The increase in Casa funds in public sector banks was possible because the government had asked PSBs to provide growth targets for low-cost deposits in their statement of intent for 2009-10. This is the first time such a step was taken, as in previous years the government used to look for overall deposit growth targets. The increase in Casa was mainly done to ensure that banks can keep their cost of funds low, which help the government to bring down the lending rates.
In the recent months, the Reserve Bank of India (RBI) has also shown its concern on the falling level of Casa as banks over the last few years mainly depended on high-cost bulk deposits the funds coming in from companies, including public sector entities.
Over the years, there has been decline in the public sector banks share of Casa in total deposits, which has reduced from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.
“There was a cut in spending in this year and increase in the propensity to save. This was mainly because interest rate on fixed deposits came down drastically and the depositors did not want to lock in their funds in fixed deposits,” a senior executive of a public sector bank said.
In the last one year banks have reduced deposit rates more than 300bps. For instance SBI is offering 6.25 per cent for one-year deposit; a year ago it was as high as 10.5 per cent.
The extension of branches has also helped banks in increasing the low-cost deposits. For instance during the first six months, SBI and Union Bank of Indian have opened 500 and 160 branches, respectively, have been benefited from the expansion.
According to bankers as the public and private sector banks are expanding their branches the share of Casa is likely to rise further.
Wednesday, October 21, 2009
Banks close deposit rates to where they were five years ago
In the last few months the banks have slashed their deposit rates which have shrink depositors income. Banks have reduced interest rates (especially for deposits of up to one year) by about four percentage points in comparison to a year ago.
At present after the cut the deposit rates of 15 days to one-year period range from 3 per cent to 6.25 per cent per annum. Whereas five-and-a-half years ago, in March 2004, the peak rates for this time duration was about 5.25 per cent.
After that the deposit rates began to rise and gradually over the next few years, the deposit rates reached 8 per cent in March 2008.
Moreover banks started lending aggressively as the economic growth started improving.
For aggressive lending banks needed more resources thus they started increasing deposit rates.
However in the bulk market interest rates in the bulk fixed deposits market (deposits above Rs 1 crore) were equally higher by 0.50-1 percentage point. Thus the deposit rates of one-year tenure increased to 10.25 per cent a little over a year ago with the economy moving fast.
The global meltdown undulate also started effecting India, GDP numbers were reduced, as of loan growth figures. The banks also did not require extra liquidity as they had enough.
The investor’s confidence got shaken due to crisis but bank treasury continued to fill up even when they could not find lend-able opportunities for the money pouring in.
For instance State Bank of India for a few months received deposits at the rate of about Rs 1,000 crore a day which led it to set out the bulk money in the Reserve Bank of India’s reverse repo auctions that earned it 3.25 per cent.
Thus banks have been steadily reducing deposit rates for the past few months and now the rates have been closed to where they were five years ago.
After revision State Bank’s one-year deposit is at 5.75 per cent.
However some of the banks have reduced their rates deeper. Punjab National Bank, Union Bank and Indian Bank offer about 5.50 per cent for deposits of similar tenor while Bank of Baroda, a few months ago, pruned them to 5 per cent. While other bank’s deposit rates stand at 6.25 per cent.
At present after the cut the deposit rates of 15 days to one-year period range from 3 per cent to 6.25 per cent per annum. Whereas five-and-a-half years ago, in March 2004, the peak rates for this time duration was about 5.25 per cent.
After that the deposit rates began to rise and gradually over the next few years, the deposit rates reached 8 per cent in March 2008.
Moreover banks started lending aggressively as the economic growth started improving.
For aggressive lending banks needed more resources thus they started increasing deposit rates.
However in the bulk market interest rates in the bulk fixed deposits market (deposits above Rs 1 crore) were equally higher by 0.50-1 percentage point. Thus the deposit rates of one-year tenure increased to 10.25 per cent a little over a year ago with the economy moving fast.
The global meltdown undulate also started effecting India, GDP numbers were reduced, as of loan growth figures. The banks also did not require extra liquidity as they had enough.
The investor’s confidence got shaken due to crisis but bank treasury continued to fill up even when they could not find lend-able opportunities for the money pouring in.
For instance State Bank of India for a few months received deposits at the rate of about Rs 1,000 crore a day which led it to set out the bulk money in the Reserve Bank of India’s reverse repo auctions that earned it 3.25 per cent.
Thus banks have been steadily reducing deposit rates for the past few months and now the rates have been closed to where they were five years ago.
After revision State Bank’s one-year deposit is at 5.75 per cent.
However some of the banks have reduced their rates deeper. Punjab National Bank, Union Bank and Indian Bank offer about 5.50 per cent for deposits of similar tenor while Bank of Baroda, a few months ago, pruned them to 5 per cent. While other bank’s deposit rates stand at 6.25 per cent.
Banks offering low interest rate on term deposits are safer than NBFCs
Before investing your surplus money in term deposits you must consider the safety front while selecting between the bank and a non-banking finance company (NBFC). The bank might offer lower interest rates while the NBFCs offer higher interest rate but from safety point of view banks are safer for investment.
According to wealth managers along with the interest rate differential, there are other factors to be looked up on such as the credit rating of the instrument, the liquidity position of the company, its balance sheet and its sector of operation before make a final choice.
Rajesh Saluja, chief executive officer of Ask wealth pointed out, “Undoubtedly, NBFCs offer higher interest on deposits as compared to banks, but banks do provide much higher safety as compared to any NBFC. A customer who is opting for an NBFC should keep in mind the credit ratings of the company. Unless the credit rating is ‘AA’ or above, a customer should resist from parking their funds in any NBFC”.
Himanshu Kohli, founder of Client Associate also agree with Saluja’s views. He said, “While, a close look at credit ratings is important, it is beneficial for customers if they park their funds in any NBFC only for a very shorter duration.”
While some of the financial planners recommends diversification of deposits. Mukesh Gupta, director Wealthcare Securities said, “Since parking in NBFCs carries a huge risk, one should not park more than 20 to 25 per cent of one’s surplus funds in NBFCs”.
In case you decide to invest with NBFCs then sector of operations should also taken into consideration. An independent financial planner pointed out, “Parking of surplus funds in NBFCs that lend to the real-estate sector can be termed as a more risky proposition compared to NBFCs providing car finance”.
Although most of the banks are offering a maximum of 7.5 per cent interest on certain maturity, whereas some of the NBFC are offering as high as 12 per cent on deposits of similar maturity.
Regarding how safe it would be to invest funds in NBFCs, LP Agarwal, chief general manager of Punjab National Bank said, “If someone is depositing in the stronger NBFCs such as Sriram Finance and Tata Finance, among others, the risk is comparatively lower. But, in general, depositing in NBFCs is risky and one should keep in mind that who is in the management team and their balance sheet, among other things.”
According to H S Saini, general manager, Corporation Bank, “Banks provide higher flexibility to customers. One can break one’s deposit in case of need. But, NBFCs generally do not allow that. Hence, until the interest rate differentials are very substantial, banks deposits are better bets even with lower interest rates”.
According to wealth managers along with the interest rate differential, there are other factors to be looked up on such as the credit rating of the instrument, the liquidity position of the company, its balance sheet and its sector of operation before make a final choice.
Rajesh Saluja, chief executive officer of Ask wealth pointed out, “Undoubtedly, NBFCs offer higher interest on deposits as compared to banks, but banks do provide much higher safety as compared to any NBFC. A customer who is opting for an NBFC should keep in mind the credit ratings of the company. Unless the credit rating is ‘AA’ or above, a customer should resist from parking their funds in any NBFC”.
Himanshu Kohli, founder of Client Associate also agree with Saluja’s views. He said, “While, a close look at credit ratings is important, it is beneficial for customers if they park their funds in any NBFC only for a very shorter duration.”
While some of the financial planners recommends diversification of deposits. Mukesh Gupta, director Wealthcare Securities said, “Since parking in NBFCs carries a huge risk, one should not park more than 20 to 25 per cent of one’s surplus funds in NBFCs”.
In case you decide to invest with NBFCs then sector of operations should also taken into consideration. An independent financial planner pointed out, “Parking of surplus funds in NBFCs that lend to the real-estate sector can be termed as a more risky proposition compared to NBFCs providing car finance”.
Although most of the banks are offering a maximum of 7.5 per cent interest on certain maturity, whereas some of the NBFC are offering as high as 12 per cent on deposits of similar maturity.
Regarding how safe it would be to invest funds in NBFCs, LP Agarwal, chief general manager of Punjab National Bank said, “If someone is depositing in the stronger NBFCs such as Sriram Finance and Tata Finance, among others, the risk is comparatively lower. But, in general, depositing in NBFCs is risky and one should keep in mind that who is in the management team and their balance sheet, among other things.”
According to H S Saini, general manager, Corporation Bank, “Banks provide higher flexibility to customers. One can break one’s deposit in case of need. But, NBFCs generally do not allow that. Hence, until the interest rate differentials are very substantial, banks deposits are better bets even with lower interest rates”.
Subscribe to:
Posts (Atom)
