With most Indian banks increasing their based deposit rates, most non banking finance companies (NBFCs), including housing finance companies are slowly increasing their interest rates on deposits in a bid to woo savers.
All major housing finance companies like HDFC, LIC Housing Finance, DHFL and Hudco are now offering over 7% for a one year deposit compared with between 6-6.5% about six months back.
For instance, Mahindra and Mahindra Finance (MMFL), rated FAA+ is paying a 8% for a one-year maturity while Shriram Transport, which commands a similar rating is offering 8.75% for a one-year deposit. While ICICI Bank offers 6.75 % for a one year deposit, though it offers 7.25% 390 days.
HDFC Bank offers 7-7.5% for maturity of between 365 and 380 days. On the other hand, the AA+ rated DHFL, for instance, is paying 9% for a one year deposit where the minimum amount is Rs 10,000.
Says Ramesh Iyer, MD, MMFL, “With interest rates moving up, banks have started increasing their deposit rates. As a result NBFCs too are increasing rates since there is typically a gap between rates offered by banks and us.”
With NBFCs offering higher rates than banks—State Bank of India is offering a rate of just 7%—they have managed to mop up money. Mahindra Finance has garnered deposits close to Rs 700 crore in the last 8-10 months. Says R Sridhar, MD, Shriram Transport, “We raised money for the first time in July and so we offered a slightly higher rate than some of our peers.
We have collected around Rs 500-600 crore and may consider lowering the rate now.”
SBI recent 10-year retail bond issue, with a call option at the end of the fifth year, had carried an annual coupon of 9.25 % while 15 year bonds, with a call option at the end of the 10th year, were offering an annual interest of 9.5%.
Meanwhile corporate looking for deposits too are being forced to raise interest rates. Real estate major Unitech is offering 11% for six months while Avon Corporation and another real estate company, Kolte Patil, is paying 11.46% for for a one year deposit. Not surprisingly, most savers prefer banks.