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Following banks’ lead, cos cut deposit rates by up to 45 bps

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Mumbai: Investors who are big savers in corporate fixed deposits are in for some disappointment.

Various companies have slashed their deposit rates by 20-45 basis points following the cut in rates by the country’s largest lender State Bank of India.

While Bajaj Finance will reduce its rates by 25-40 basis points (bps) in the first week of March, Mahindra Finance and PNB Housing Finance have already reduced their deposit rates by 15-45 bps earlier this month. A basis point is a hundredth of a percentage point. After the reduction, Bajaj Finance will pay a maximum rate of 7.80 per cent, while Mahindra Finance will pay 8.1 per cent and PNB Housing Finance will pay 7.95 per cent.

Senior citizens could earn an extra 25 bps.

This is in line with the overall reduction in deposit rates led by SBI, which now pays a maximum of 6 per cent.

Leading private sector lender HDFC Bank pays a maximum of 6.4 per cent on its deposits. “Despite the cut in rates, investors in corporate deposits still earn 155-200 basis points over bank deposits, and hence they should continue with company deposits,” says Mohit Mittal, vice-president, investments, Bajaj Capital. Mittal said investors looking for absolute safety could also consider the 7.75 per cent Government of India bonds, where rates have not fallen yet.

However, they must buy these keeping in mind their liquidity requirement as these bonds have a lock-in period of seven years. While deposits will work for those whose income is not taxable or are in the marginal tax bracket, financial planners believe investors in the highest tax bracket should look at debt mutual funds.

Debt funds score over deposits as they give indexation benefits that lead to higher post-tax returns if held for three years and above. “For investors in the high tax bracket, banking and PSU debt funds and corporate debt funds work well as they can get the benefit of indexation if they hold for more than three years,” said Rupesh Bhansali, head (distribution), GEPL Capital.

He believes investors can earn 7-8 per cent returns from these funds if they hold it for three years and above.




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