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The outlook on the rate cycle is uncertain and liquidity still remains tight after the recent NBFC crisis.
But investors do have select opportunities among non-banking/housing finance companies to lock into reasonably attractive rates with fairly high degrees of safety.
The fixed deposit schemes of NBFCs tend to offer higher interest rates than those of banks. Of course, the risks are a tad higher in NBFC deposits, given that they are not insured. Bank deposits of up to ₹1 lakh are insured, which acts as a safety net.
Safe bet
In this context, the FD scheme from LIC Housing Finance(LIC HF) offers a good blend of reasonable interest rates and a very high degree of safety to depositors. The ‘Sanchay’ deposit is rated FAAA (stable) by CRISIL, indicating the highest degree of reliability and safety with regard to servicing of financial obligations — interest and principal repayments.
LIC HF offers two options for its fixed deposit scheme — non-cumulative and cumulative.
The non-cumulative option offers interest payout on an annual basis, usually payable on March 31. Interest is credited to the customer’s account electronically.
The company offers FDs with tenures ranging from one to five years. Interest rates are fairly attractive, especially for longer tenures — 8.2-8.3 per cent for tenors ranging from two to five years in the case of non-cumulative and cumulative deposits.
Senior citizens will get an additional 25 basis points on these FDs.
These rates are comparable to those offered by the post office Senior Citizen Savings Scheme (SCSS) on a pre-tax basis. Senior citizens who have exhausted the SCSS limit and other options can consider the LIC HF Sanchay deposit as a diversifier and park a small portion of their surplus in it.
Depositors can consider investing for tenures of three and five years, as rates are quite attractive in that bucket.
In case liquidity and cash flow are required, the non-cumulative option can be taken to generate regular interest payouts.
Depositors who do not need regular interest payout can opt for the cumulative option to get the benefits of compounding.
The minimum investment required in the deposit is ₹10,000 and in multiples of ₹1,000 thereafter. The interest on the deposit is fully taxable at the slab rate of the depositor.
Investors can open deposit accounts by contacting branch offices of LIC Housing Finance or through financial product distributors.
About the company
LIC Housing Finance is one of the largest providers of home loans in the country. More than 93 per cent of the firm’s book comprises retail home loans or loans against properties.
The company made disbursements of ₹36,666 crore in the nine months of FY19, a growth of 15 per cent over the same period in the previous fiscal. Its total outstanding portfolio as of December 2018 stood at ₹1,81,698 crore, an increase of 16.3 per cent Y-o-Y. The return on average equity has inched up to 17 per cent in the nine months ended December 2018. Capital adequacy is healthy, at 14.82 per cent.
The net non-performing assets ratio is under control at 0.85 per cent as of December 2018.
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