Tata Capital, Shriram NCDs may be a better bet than bank FDs

Mumbai: Blue-chip corporate debt is emerging as a viable investment option with an increasing number of conservative Indian savers seeking low-risk but higher-return alternatives to bank term deposits.

That quest for higher yields should ensure good market response this week to the non-convertible debenture (NCD) issues of Tata Capital and Shriram Transport.

Even first-time investors could buy into the Tata Capital issue, opening January 7, said investment advisors. The more seasoned investors could look at buying both offers, with the Shriram sale opening on January 6.


“Given that bank deposit rates are on a downward trajectory, many fixed deposit holders are seeking alternatives and investing for the first time in such instruments,” said Anup Bhaiya, CEO, Money Honey Financial Services. “Secured NCDs of Tata Capital Housing Finance, with reputed promoters and the highest rating, should be a good starting point.”

Over the past one year, top banks have reduced their deposit rates by 55 -100 basis points. State Bank of India (SBI), which offered a maximum of 6.8 per cent on its deposits in Nov 2018, now offers 6.25 per cent. HDFC Bank and Kotak Bank, which offered 7.3 per cent, now offer 6.3 per cent. ICICI Bank, which offered 6.9 per cent, now offers 6.2 per cent. Bonds issued by the Government of India (GOI), with seven-year tenures, pay 7.75 per cent.

By contrast, Tata Capital Housing offers tenures of three, five, eight and 10 years paying interest rates of 8.1, 8.3 per cent, 8.4 per cent and 8.7 per cent respectively. While NCDs of tenures between three and eight years are secured, the 10-year instrument is unsecured.

Transport offers tenures of three, five and seven years with returns of 8.85 per cent, 9 per cent and 9.1 per cent, respectively.

Investment advisors said the Tata Capital Secured NCD with eight-year tenure offers 8.4 per cent, which is a 210-225 basis higher than what is paid by bank deposits and 65 basis points higher than GOI bonds.

Shriram Transport Finance with a tenure of seven years offers as high as 9.1 per cent which is a 280-290 basis points higher than bank deposits.

Senior citizens can earn an extra 25 basis points here.

Tata Capital Housing offers monthly and annual interest options only, while Shriram, in addition to these, also offers cumulative options for three and fiveyear tenures.

The Tata Capital Housing Finance NCDs carry AAA rating with a base public issue size of Rs 500 crore and an option to retain over-subscription of up to Rs 1,500 crore, totaling to Rs 2,000 crore. Shriram Transport Finance, with a base size of Rs 200 crore and an option to retain oversubscription aggregating up to Rs 1,000 crore, has AA rating. Due to lower ratings, Shriram Transport Finance pays higher rates compared with Tata Capital Housing Finance NCDs have received good response in the recent past, with the L&T Finance NCD issue in December getting fully subscribed in two days. With interest rates on their way down, several retirees and investors are looking at NCDs with higher ratings as an investment option outside fixed deposits.

“Investors who understand the nuances of NCD investing could split their money equally in both the NCDs as that will improve overall returns,” said Rupesh Bhansali, head (distribution), GEPL Capital.