Rising corporate deposit rates likely to move further up

Rising corporate deposit rates likely to move further up 

Savers have enough reason to rejoice after the Reserve Bank of India (RBI) effected the first rate increase in more than four years, pointing to a commensurate rise in rates for corporate deposits. 

Although commercial banks did not raise rates in bulks, at least four nonbanking finance companies (NBFCs) — Bajaj Finance, Dewan Housing Finance, Shriram Transport Finance and Mahindra Finance — have increased rates by 10-60 basis points. On renewals, most of them now offer 15-25 basis points extra. Senior citizens can earn about quarter to half a percentage points more in returns. Following RBI’s policy action, the latest series of rate hikes have come from non-banking finance companies than any commercial banks,” said Anil Chopra, group director — corporate affairs, at Bajaj Capital. “Retail investors have again started making a beeline for highyielding corporate deposits after the rises in past one or two weeks.” 

“The additional benefit on renewals is another attraction for depositors,” he said. Over the past two weeks, Bajaj Finance, DHFL and Shriram Transport have declared loyalty rewards. Existing depositors would gain 15-25 basis points over and above the revised rates if they renew their exiting deposits on maturities. 

“More non-banking finance companies are likely to come with higher rates as they jostle to tap the retail money,” said Vikram Dalal, founder and managing director of Synergee Capital Services. “This will also help those companies to expand retail reach, a key business driver for them.” “As the rates are hardening, many NBFCs are in a hurry to raise the funds so that they do not have to pay higher rates in future,” he said. 

Speculation is rife that the largest mortgage lender HDFC Ltd too may raise its corporate deposit rates this week across maturities. The top-rated company now pays 7.55 per cent with one- to five-year maturities, which is below the market average. Dewan Housing Finance, another toprated company, raised rate by 55 basis points to offer 8.45 per cent for three-year maturity deposits. Another triple-A rated company, Bajaj Finance, has raised rates by 30 basis to offer 8.40 per cent for similar maturity. 

Shriram Transport offers the highest rate at 8.60 per cent. “Although corporate deposits are not directly comparable with bank deposits, savers seeking high interest income are increasingly preferring them,” said Ajay Manglunia, executive vice president – fixed income, Edelweiss Finance. You need to invest only to enhance your regular interest income,” he said. Typically, retail investors should not park more than 10 per cent of their total debt portfolio in single company deposit, said experts. Depositor should not go for any deposit rated lower than AA+. 

Bank deposits offer about 150-200 basis points lower than corporate deposits now. But, they are perceived to be bearing no default risk. Also, one can redeem bank fixed deposits before maturity unlike in corporate ones, which do not offer any income tax incentives. 

The Economic  Times, New Delhi, 18th June 2018