Please bring in more bank deposit options.
These 2 banks are rather risky.
Indicators like Capital Adequacy Ratio (CAR) and Non-Performing Assets (NPAs) for these 2 banks are NOT very healthy
I had checked the CAR of suryoday. It is above 23 plus. The minimum set by rbi for sfb is 14 to 15 percent.
Utkarsh is around 17 percent
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No, you cannot pledge these FDs for margin.
There are more banks we are tying up with. We will keep adding to the list.
Ok thanks Mohit. Try to tie up with big banks too, not just small finance or co-operative banks.
Banks with good capital adequacy ratios and low NPAs would be perfect.
sriram finance is offering around 8.15% right now. i invested a few weeks back and this is without lock-in even available for a 2 year tenure. what i don’t really understand is the risk logic here. if you actually try to compare probabilities how is the failure risk of suryoday bank or utkarsh bank meaningfully lower than that of say bajaj finance/finserv? if the only argument is that “banks are safer than all nbfcs” that might have made sense a few years ago not today. do we really think bajaj finance or sriram finance is more likely to default than these small banks? realistically, this needs a more nuanced discussion …
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@livepositionaltrader You probably invested significantly more than 5L,
so the DICGC insurance (currently upto 5L) on bank-FDs wasn’t a factor in your analysis?
(or is there something identical or better available on the Sriram finance’s offering?)
Personally, i think that
none of us is in a position to accurately determine and reliably differentiate between such probabilities.
(various reasons like - lack of timely access to all relevant information, inability to understand/review detailed financial statements/regulations, lack of time to perform a thorough analysis, …)
So, in the absence of doing an reliable/accurate risk-assessment, we rely on the hive-mind.
Essentially, we perceive this as
the inability of Sriram finance to raise funding at
the current ongoing risk-free (sovereign guarantee risk) rate of return around 6-7%.
So, the additional couple of percentage points of returns
are to compensate us for the additional risk we are undertaking (whatever they may be).
In other words, what the math is telling us is
if we were to replay this EXACT scenario (investing in this offering from Sriram finance) a 100 times,
- we will lose our entire principal a small fraction of those 100 attempts
- we will lose various fractions of our principal/interest a larger fraction of those 100 attempts
…the fractions of such partial/complete failures being such that,
the effective average returns over those 100 attempts will be around 6-7%.
Of course, we humans are not perfectly rational beings.
Banks as a concept have been present (as institutions of relatively high trustworthiness) in our society /collective psyche for far longer than NBFCs. For better or worse, our society consists of individuals for whom “peace of mind” is an offering (among other nuances) that banks provide, and hence such folks are happy to pay something for it - a fraction of a percentage point of interest returns.
Described in terms of the “priceless” ad campaign, the (irrational?) sales-pitch for a bank-FD becomes -
- Account opening charges - 200 INR.
- Monthly statement email/sms charges - 15 rupees (per month).
- ATM debit card fees - 500 INR/annum.
- Freedom to do [insert here whatever you dream of doing in your life] for the next decade
knowing that all FD payments will be deposited in your bank account without fail on time - Priceless.There are somethings that money can’t buy.
For everything else, there is… a Bank FD?
I see the recent trend by various NBFCs offering individuals
bank-FDs that do NOT require the individual to hold a savings account with the bank,
as a way to further tweak the traditional offerings by the bank
enabling an individual to get exposure to a bank fd
without requiring to avail any of the other services offerred by the bank (and pay for them).
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@cvs thanks. most of your points make sense and i largely agree. people will naturally prefer banks over nbfcs an thats how things have worked historically. my point was not about taking blind risk but about selectively exploring large well capitalised nbfcs where the perceived risk is higher than the actual risk (these days). sometimes it’s not just straight math 
no doubt for an fd maybe the real question is indeed the probability of default that too over the next say 2/5 years - the fd tenure thats like less than 0.5% … actually even less than taht. adding to that in case of a large nbfc (large matters here!) multiple low probability things would need to go wrong together say asset quality, liquidity, regulation, funding access and what not for that to happen. anyways tthat combined thing is realistically quite low was my opinion compared to that ujvain and surya tv bank.
It is very difficult for anyone to do this quantification of risk.
There are several examples of large NBFCs defaulting and depositors losing money. Outside of cooperative banks, depositors in universal and small finance banks have remained protected. Even when banks have faced stress or defaults, losses have been borne by shareholders. Regulators and the government has always stepped in to protect depositors.
We did consider enabling NBFCs. However, the DICGC insurance of Rs. 5 lakhs, which is not available for NBFC deposits, adds a clear layer of safety for bank depositors and lowers risk in favour of banks, even if they are SFBs. The objective is to let you shop between different bank FDs even if you don’t have an account with them.
At Zerodha, we usually do not recommend financial products or take views on returns. Our role is to enable choice and execution. Many of our users take explicit market risk with full awareness. Fixed income products are different. They are expected to deliver returns commensurate with the risk taken. NBFC deposits do not offer returns meaningfully higher than those of other deposits, making the added structural risk difficult to justify. When we see this imbalance, we believe it is appropriate to err on the side of not offering the product.
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alright… thanks for the details.