Tag: HDFC deposit

Should you go for HDFC Green deposits, SBI Platinum deposits?

Personal Finance

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Last week, housing finance company, HDFC and the country’s largest bank, SBI launched new fixed deposits. While the HDFC Green & Sustainable Deposit is targeted at those motivated by the ESG (environmental, social, and governance) theme, the appeal of SBI’s Platinum Deposit Scheme lies in the slightly higher rates compared to the bank’s existing deposit rates.

That said, these deposits don’t seem attractive, across both short (i.e. less than one year) and long tenures. There are many other higher-return fixed deposit options, both from banks and non-banking financial companies (NBFCs) that investors can consider. With interest rates expected to move up, though not any time this year, investors can go for 1–2-year deposits (and not very long-tenure ones) to benefit from a potential rate hike.

SBI Platinum doesn’t shine

The scheme comes with three tenure options – 75 days (2.5 months), 525 days (around 1.5 years) and 2250 days (6 years and 3 months) with respective interest rates of 3.95 per cent, 5.10 per cent and 5.55 per cent for under ₹2 crore deposits. These rates are 0.05 to 0.15 percentage points higher than those offered on SBI’s existing deposits of such tenures.

Senior citizens get 4.45 per cent and 5.60 per cent on the Platinum 75 days and 525 days deposit respectively. Platinum 2250 days deposit offers 6.20 per cent (rate applicable on the SBI WECARE Scheme), an extra 0.65 per cent for senior citizens. The Platinum deposit scheme is open for investment until 14 September 2021.

Deposits from the Post Office and many public sector banks are a good alternative to SBI Platinum deposits. The ultra-safe Post Office 1-year and 2-year time deposits (interest paid annually, calculated quarterly) offer 5.5 per cent per annum.

This is better than the 5.10 per cent offered to non-senior citizens on SBI’s platinum 525 days deposit.

Many other public sector banks too offer 5.10 -5.20 per cent on their 1-2-year deposits. SBI’s 5.6 per cent for senior citizens is a tad better than the 5.50 per cent on Post Office deposits but is similar (5.60 – 5.70) to that on many public sector bank deposits.

HDFC green deposits flash amber

HDFC’s Green & Sustainable Deposit (Green Deposit) is for those enthused by the popular ESG theme. Money mobilised through these deposits will be used to fund projects supporting the UN’s sustainable development goals. These deposits have tenures ranging from 33 to 120 months and interest rates from 5.75 to 6.55 per cent per annum on deposits of up to ₹2 crore. Deposits of up to ₹50 lakh will get 0.10 per cent more if booked online. They come with monthly, quarterly, half-yearly and annual pay-outs, and a cumulative option. The deposits have the highest ratings of FAAA/Stable by CRISIL and MAAA(stable) by ICRA.

While there are a few ESG-themed equity MFs in India, there are no such debt funds. We compare HDFC’s Green Deposit with other regular FDs from NBFCs. Unlike bank deposits, NBFC deposits are not protected under DICGC’s insurance cover of up to ₹5 lakh (principal and interest). From a safety perspective, it’s best to invest only in AAA-rated NBFC deposits.

Purely based on returns, other AAA-rated NBFC deposits offer a better deal compared to HDFC’s Green Deposits. Also, minimum tenure for Green Deposits is as high as 33 months. Other regular NBFC deposits, with 1-year and 2-year tenures, may be more suitable given low interest rate scenario.

Given that the minimum tenure of 33 months itself is on the higher side, we restrict our comparison with peers to only this tenure. Even here, green deposits don’t score. The 33-month Green Deposit offers rates from 5.90 to 6.10 per cent per annum on the non-cumulative options and 6.10 per cent per annum on the cumulative option.

But HDFC’s 33-month regular deposit offers 0.10 per cent higher on each of the respective options. That is, 6.0 per cent for the monthly, 6.05 per cent for quarterly and 6.10 per cent for half-yearly pay-out option, and 6.20 per cent both for annual pay-out and cumulative option. HDFC’s regular deposit rates are a tad better than those of the financially strong Bajaj Finance’s AAA-rated deposits rates as well. Senior citizens get 0.25 per cent more per annum on all these deposits.

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Why HDFC deposits are a safe option for senior citizens

Personal Finance

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The prevailing low interest rates on deposits have been pinching senior citizens the most. Seniors who are more keen on capital conservation than higher interest rates can consider the deposits from HDFC. Currently, HDFC offers seniors 6.1 per cent interest for 24-month deposits

Depositors who wish to get regular payouts can opt for the non-cumulative option, with monthly/quarterly/half yearly or annual payouts. Those who don’t need regular payouts, can instead opt for the cumulative option which offers annual compounding.

The minimum amount that can be deposited with HDFC for a fixed deposit is ₹20,000.

While the deposits of HDFC, an NBFC, are not covered by deposit insurance (bank deposits of up to ₹5 lakh are covered by DICGC), its 40-year plus stable business provides significant confidence. Besides, the company has been maintaining a AAA rating on its deposits for more than 26 years.

How they fare

As interest rates have almost bottomed out, they are likely to inch up in the next two to three years. Hence, at the current juncture, it is wise to lock into deposits with a tenure of one or two years.

For such tenures, HDFC offers seniors better interest rates than those offered by prominent banks such as SBI (up to 5.6 per cent), HDFC Bank (up to 5.4 per cent), ICICI Bank (up to 5.5 per cent) and Axis Bank (up to 6.05 per cent), which are considered safest options among banks.

Other private sector banks and small finance banks, however, offer even higher rates (up to 7.5 per cent) for one to two year deposits. The recent debacles at YES Bank and other co-operative banks have stoked fear in the minds of depositors. Given that, seniors may prefer safety of capital over the lure of higher rates.

HDFC also offers better rates compared to corporate FDs with similar ratings from other NBFCs such as LIC Housing Finance, that offers up to 5.9 per cent for a tenure of up to 2 years.

About HDFC

Incorporated in 1977, HDFC, a housing finance company currently offers loans to individuals (comprising 76 per cent of the loan book) and corporates (6 per cent). HDFC also lends for construction finance (11 per cent) and lease rental discounting (7 per cent).

With an outstanding loan book of ₹,52,167 crore as of December 2020, HDFC is India’s largest housing finance company. HDFC’s non-performing assets (proforma) are contained at less than 2 per cent. In addition to that, the company’s provisions (cumulative including those related to covid) cover up to 2.56 per cent of the loan book exposure.

As at the end of December 31, 2020, HDFC’s capital adequacy ratio stood at 20.9 per cent, well above the regulatory requirement of just 14 per cent.

HDFC also has several financial subsidiaries –prominent ones among them are HDFC Bank, HDFC Asset Management Company, HDFC Life Insurance, HDFC Credila and HDFC Ergo. Its consolidated profits at the end of the first nine months of FY21 stood at ₹1,33,900 crore.

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