Despite offering lucrative rates on deposits, many domestic non-banking financial companies (NBFCs) have not been able attract customers in a big way.
On the other hand, even though interest rates on deposits have been falling heavily, banks are in a better position to attract more customers.
Today, various NBFCs like LIC Housing Finance , Mahindra Finance Ltd and Housing Development Finance Company offer better rates on their deposits for a maturity of one year.
For instance LIC Housing Finance offers 7.3% for a less than Rs 20 crore deposits for a period of one year, HDFC offers about 7.7%, Mahindra Finance offers 8% for the same period.
At the same time, top banks like Stare Bank of India (SBI) and HDFC Bank offer 6.50% and 7.25% respectively, for a period of one year.
Explaining the development investment strategist, noted that taking advantage of a high interest rate on deposits for NBFCs, customers certainly are looking at parking only a portion of their savings with them ..
“While a higher rate is offered by the NBFCs as compared to banks on deposits, customers are looking at the former, but in a small way as the risk involved and the reliability factor is still less as compared to banks,” he explained.
For instance, Shriram Transport Finance’s non-convertible debentures (NCDs) are offering around 10.25-11.50%.
The NCDs issue of Shriram Transport Finance has received a good response from qualified institutional buyers and the high net worth individuals, thereby mopping up nearly Rs 4,500 crore in just a day’s time. The issue closes on August 14.
Majority of customers still prefer to stick with the traditional bank deposits point out bankers mainly due to the low risk factor, security with banks and easy accessibility.
“If customers are looking at a short or medium term gain, they can always look at NBFCs as a better option, but then the confidence still lies with banks. Customers would still prefer parking 90-95% of their investments with banks to feel risk-free,” said a top private sector bank executive.
V Ravi, chief financial officer with Mahindra & Mahindra Financial Services Limited (MMFSL) has noted that the company is attracting a lot of depositors and collecting huge amount of funds.
“We have seen a slight increment in the funds getting parked with us, however, we also cannot deny the fact that the banking sector has a greater capacity to absorb higher amount of funds,” he said.
According to data from the Reserve Bank of India, the number of deposit taking NBFCs have declined from 401 at the end of June 2007 to 364 at the end of June 2008, mainly due to the exit of many NBFCs from the deposit taking activity.
The RBI noted that this trend is indicative of the shift in preference of NBFCs .The decline in public deposits was mainly evident in the case of equipment leasing companies and hire purchase companies, mainly due to reclassification of some of these companies as asset finance companies, it said.