Why IndusInd Bank FD is an attractive short-term choice

With fixed deposit (FDs) rates ruling at historical lows, investors using bank FDs for regular income or as an avenue to build a risk-free corpus are left with few choices.

In this backdrop, FDs from IndusInd Bank, are worth considering, given their reasonably competitive rates as well as improving financial parameters. At the height of the pandemic, IndusInd was witness to the fallout of the YES Bank crisis and it rubbed off on depositor sentiment, rise in delinquencies and significant moderation in loan growth. With Covid-19 threat beginning to dissipate, the problems at IndusInd are also beginning to disperse. Deposit growth has improved, loan growth is better, gross bad loans (GNPAs) have shrunk and provisioning has picked up. Plus, the recent capital injection from promoters last week is a boost.

Yes, some small finance banks offer better rates than IndusInd. If you already have exposure to small finance banks, considering the bettering financials of IndusInd, you can go for this option. Given the current low rates , investors are better off putting their money in shorter-tenure deposits and hence one-year FDs are a good choice.

Attractive rates

IndusInd Bank offers 6.5 per cent per annum on its one- to two-year tenure. For senior citizens, the rate is 7 per cent, that is, an extra 0.5 percentage points.

For similar one- to two-year deposits, public sector banks offer rates of 4.9-5.4 per cent and most private sector banks offer less than 6.5 per cent. As a thumb rule, senior citizens will get an additional 0.5 percentage points on the card rates from most banks.

Investors are better off putting their money in shorter-tenure deposits. This strategy will help them prevent their money from getting locked in longer tenures, and one can retain the flexibility to hunt for better returns once the rate cycle turns. Hence, one-year FDs of IndusInd Bank are a good option now. You can, of course, opt for deposits of below one year too, but the interest rates on these are lower.

Apart from booking an FD in person at the bank branch, investors can also book one online on the bank’s website. Do note the maximum deposit amount allowed online is ₹ 90,000 using Aadhaar eKYC.

In the event of premature withdrawal before the specified tenure, the interest rate applicable will be the rate corresponding to the withdrawn amount and basis the actual run period.

Improving financials

IndusInd’s bettering financials lend comfort.

The bank’s financial performance across last three quarters shows improvement in various metrics. Deposit growth is up by 8 per cent and 5 per cent, respectively, in the September and December quarters (quarter-on-quarter). Gross non-performing assets (GNPA) has steadily declined from 2.53 per cent in Q1, to 2.21 per cent in Q2 and now to 1.74 per cent in Q3. While proforma gross non-performing loans stands at 2.93 per cent as of December (this is on the lower side compared to other frontline banks), the overall restructuring pool was limited to 1.8 per cent.

The bank has improved Provision Coverage Ratio from 67 per cent in Q1 to 87 per cent in Q3 on reported GNPAs and maintained PCR at 77 per cent even after including proforma NPAs. It added ₹1,100 crore to Covid provisions taking total Covid provisions to ₹3,261 crore, and fully provided for unsecured retail and microfinance loans conservatively.

In Q3, IndusInd has reported improvement in collection efficiency (97 per cent in Dec-20) to near pre-Covid levels across segments. Retail loans are seeing healthy traction (up 5.8 per cent y-o-y), with disbursements in vehicles/micro-finance segment now at pre-Covid levels.

Its capital adequacy ratio including nine months of FY21 profits was at 16.93 per cent as of December 31, 2020 and this got augmented to a comfortable 17.68 per cent, with IndusInd on February 18 raising ₹2,021 crore of common equity capital via conversion of preferential warrants issued to promoter entities.