FD Watch . Shriram Transport Finance Company: With risk rides reward

In spite of climbing interest rates on bank deposits, NBFCs/corporates still offer better rates on their FDs. For the higher risk that corporate/NBFC deposits carry compared with bank FDs, the former offers higher rates of interest.

The fixed deposit scheme of Shriram Transport Finance Company (STFC), the largest commercial vehicles financier in the country, offers attractive interest rates. It also has high ratings — FAAA/Stable by CRISIL and MAA+/Stable Outlook by ICRA. Investors with an appetite for risk can consider these deposits to park a portion of their surplus.

36-month cumulative

The company offers FDs (cumulative and non-cumulative) with tenures ranging from 12 to 60 months at interest rates of 7.95 -8.88 per cent per annum. Under the cumulative option, the interest gets compounded every month, and the principal and the interest amount are paid together at the end of the tenure.

Investors can go for the 36-month cumulative scheme which offers an attractive interest rate of 8.65 per cent per annum. This option also leaves open the opportunity to re-invest at higher rates if interest rates move up over the medium term, as is expected. Though the rate of return seems lower than that of other corporate FDs, the effective yield is attractive in STFC FDs due to monthly compounding.

For example, Bajaj Finserv offers 8.75 per cent (compounded annually) for the same 36-month deposit. But the effective yield is higher for STFC — 9 per cent; the effective yield for Bajaj Finserv FD is 8.75 per cent.

Similarly, the yield on a 33-month FD from Mahindra Finance, which offers 9 per cent rate of interest (annual compounding) is equivalent to the 8.65 per cent offered by STFC. This return is also better than what most other AAA rated NBFCs such as PNB Housing Finance, HDFC and LIC Housing Finance offer for similar tenures.

Interest rates for the non-cumulative option, too, are healthy with annual rates of 8.65, 8.71, 8.81 and 9 per cent, respectively, for monthly, quarterly, half-yearly and annual pay outs. These rates are the best for the said period when compared with most other corporate/NBFC fixed deposits under the non-cumulative option.

One can also avail herself of a loan, of up to 75 per cent of the deposit amount, against the FD. Any depositor who has had an FD in the company for more than three months can get a loan. The interest rate on the loan will be two percentage points above the interest rate payable on the deposit. The fixed deposit is available only for Indian citizens and not open for NRIs.

One can also invest through STFC’s website.

About the company

STFC, incorporated in 1979, is the flagship company of Shriram Group. It provides financing for automobiles such as commercial vehicles, tractors and passenger vehicles.

STFC has assets worth ₹1.04 lakh crore as of September 2018, a growth of over 20 per cent from a year ago.

The company’s total income and net profit in the first half of this fiscal grew 20 and 24 per cent Y-o-Y, respectively, to ₹7,681 crore and ₹1,182 crore.

However, gross NPAs (non-performing assets) have increased over the past few years. It has gone up from 3.86 per cent in FY14 and 6.18 per cent in FY16 to 9.15 per cent in FY18. That said, higher NPAs in FY18 were primarily on account of the tightening of NPA norms by the RBI.

Considering the asset quality and other NBFC-related issues that are going on, it is advisable to limit exposure to STFC FD to a small portion of your overall portfolio.

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