Banks to take a relook at fixed deposit schemes

At a time when mutual fund houses are coming up with fixed maturity plans (FMP), banks are re-looking fixed deposit schemes offered by them. As FMPs provide maturity at shorter terms while offering competitive yields with fixed deposits, they are likely to be a favourite with corporate investors, feel industry insiders.

Recently, Religare Mutual Fund, Fidelty Mutual Fund, HDFC Mutual Fund and Axis Mutual Fund have offered fixed maturity plans with maturity periods varying from 90 days to 370 days.

Asit Pal, executive director of the Corporation Bank, said: ?Definitely we will have a re-look at the performance of fixed deposits against fixed maturity plans. But we also need to get a clear picture about the market share of FMPs.?

?Fixed deposit schemes have performed better last year. Although it was little dampened on the retail side, performance of high value clients investing in FDs was quite good,? he added.

Meanwhile, FMPs have been successful in getting corporate buyers due to shorter maturity periods. While a section of corporate investors prefers fixed deposits for better returns, another section is interested in shorter terms that FMPs provide. ?Corporate investors look for convenience in investments. So it has a chance to become popular again this time,? said Nilanjan Dey, Wishlist Capital Advisors.

But according to Debjiban Basu, general manager (treasury, international banking & accounts) of United Bank of India, liquidity is a concern for corporates. ?If they are looking for easy liquidity and some interest then fixed deposits are better instruments for them. There is an upward trend of the yield in the market. Moreover, corporates are also looking at minimising their MTM losses.?

According to Salil Datar, head (branch banking) of Dhanlaxmi Bank, short-term FMPs with a maturity of about 90 days are favourite of the corporates. ?Suppose an FMP offers a yield of 6-6.3% on a 90 days maturity period, its post-tax return will be around 4.8-4.9%. For a fixed deposit of similar tenure with an estimated yield of 5-5.5%, post tax return is around 3.6%. So for shorter term FMPs are a favourite with corporate investors,? he said.

?But I do not think corporates will be much interested in FMPs with maturity period as long as 370 days. Fixed deposits have an edge over FMPs there,? he added.

D Sarkar, executive director of Allahabad Bank, said: ?We might consider increasing yield on the fixed deposits by 25-50 basis points. But that is not with an intention to compete with FMPs.?