NBFCs too raise interest rates to attract depositors

With most banks increasing deposit rates, non-banking finance companies(NBFCs), including housing finance companies and non-banking non finance companies, are being forced to fork out higher interest rates on deposits 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?s 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 corporates 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, are paying 11.46% for for a one year deposit. Not surprisingly, most savers prefer banks.