Housing finance firms hike deposit rates to raise funds

In a bid to woo customers, most non-banking finance companies (NBFCs), including housing finance companies and non-banking finance companies have gone for a fresh round of hikes in interest rates on deposits by as much as 100 basis points, in the last few days.

Major housing finance companies like HDFC and DFHL have raised their deposit rates by almost 100-150 basis points for one-year tenure. At the same time, Hudco has raised rates by 25 basis points to 7.25 per cent, in the last two months.

Keki Mistry, vice-chairman and MD at HDFC, said, "Deposits constitute one-fourth of our funding base. We believe higher deposit rates is just a temporary phenomena. However, we expect our spreads to remain stable in the range of 2.15-2.35 per cent."

However, strategists believe that most customers prefer parking their investments with banks over NBFCs, as bank deposits are secure and risk-free.

"The high deposit rates offered by the NBFCs definitely looks encouraging but customers still prefer bank deposits over NBFCs as the risks involved and the reliability factor in NBFCs is still less as compared to banks. Customers would still prefer parking 90-95 per cent of their investments with banks to feel risk-free," noted an investment strategist.

Mahindra and Mahindra Finance Ltd (rated FAA+ ), which is offering 8 per cent for a one-year maturity has kept its deposit rate steady while Shriram Transport, which commands a similar rating, is offering 8.75 per cent for a one-year deposit.Private sector major ICICI Bank is paying a 7-7.75 per cent rate on a one-year fixed deposit.

Foreign banks like Standard Chartered said on Friday that it would offer 7.75 per cent on deposits with 121-179 days maturities, up from 7.25 per cent and those in the tenure of 180-260 days duration would get a still higher rate of 7.75 per cent, up from 7 per cent. Meanwhile, Zenith Birla (India) is paying a deposit rate of 9-9.20 per cent for a period of one-year, while JP Associates is offering deposit rate of 10.50 per cent for a six-month period.

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