[Discussion] Mahindra Finance Fixed Deposit

[dvader]

My uncle just asked me about Mahindra Finance FDs (I wouldn't touch an NBFC with a 10-foot pole). My question is why the hell are NBFCs allowed to call their investment product "Fixed Deposit". This is completely deceptive and will be missold like hell to less Finance/tech-savvy people. I suppose it's not insured with DICGC which makes it like a lock in mutual fund, cuz I wouldn't trust a single thing these NBFCs say.

Is there any law against calling these investments Fixed Deposit? or is it the lack of a law that these NBFCs are exploiting to loot common people?

 

[Tejo]

My uncle just asked me about Mahindra Finance FDs (I wouldn't touch an NBFC with a 10-foot pole). My question is why the hell are NBFCs allowed to call their investment product "Fixed Deposit". This is completely deceptive and will be missold like hell to less Finance/tech-savvy people. I suppose it's not insured with DICGC which makes it like a lock in mutual fund, cuz I wouldn't trust a single thing these NBFCs say.

Is there any law against calling these investments Fixed Deposit? or is it the lack of a law that these NBFCs are exploiting to loot common people?

In 2014 only, under RBI NBFC directions, deposits from public were allowed.

How could you think NBFC, can get money to give loans without deposits?

As of now NBFC deposits are not insured by DICGC.

 

[dvader]

In 2014 only, under RBI NBFC directions, deposits from public were allowed.

How could you think NBFC, can get money to give loans without deposits?

As of now NBFC deposits are not insured by DICGC.

You misunderstood my argument. I do understand NBFCs need to take deposits. My point is why call it Fixed Deposit (which has a separate image in minds of common people), because without insurance it's just fingers crossed. 2008 was not long ago, All AAA-rated investments weren't even worth shit in a matter of weeks.

I just went through their terms and conditions, all they mention is a CRISIL-AAA rating. Does RBI give them explicit permission to call their product "Fixed Deposit"? When RBI raps up a failed institution it writes off everything to Zero which is not classified explicitly as FD and CASA Deposit. I mean everything gets reduced to zero just like that. Do we have any lawyer here who can give more insight?

 

[credit_debit]

NBFCs are not covered under DICGC, so their fixed deposits always carry higher risk and hence they are paying higher interest rates than banks. Corporate FDs like Bajaj Finance, Mahindra Finance are quite popular and they have much higher ratings as compared to typical Real Estate companies who offer higher interest rates but have higher risks.

Here is a nice article in The Mint some time back explaining details regarding Bank vs Corporate FDs.

Company FDs offer more returns than banks: What should investors do?

In comparison to bank fixed deposits, company/corporate fixed deposits provide higher interest rates but also involve a higher level of risk.

www.livemint.com

 

[j_s]

You are right to be infuriated. It is what it is. Certainly not a fixed deposit in the sense of a bank FD as you know it. They are on the right side of the law too.

 

[dvader]

NBFCs are not covered under DICGC, so their fixed deposits always carry higher risk and hence they are paying higher interest rates than banks. Corporate FDs like Bajaj Finance, Mahindra Finance are quite popular and they have much higher ratings as compared to typical Real Estate companies who offer higher interest rates but have higher risks.

Here is a nice article in The Mint some time back explaining details regarding Bank vs Corporate FDs.

Company FDs offer more returns than banks: What should investors do?

In comparison to bank fixed deposits, company/corporate fixed deposits provide higher interest rates but also involve a higher level of risk.

www.livemint.com

Some small finance banks have equal or better interest rates and are insured. Again that's not the point. My point is why call it "Fixed Deposit"? I see it as a clear breach of public trust. They could have called it Super Deposit/Vijay Malya Punarvikas Fund or anything else but FD.

Edit: Fixed Typos

 

[dvader]

You are right to be infuriated. It is what it is. Certainly not a fixed deposit in the sense of a bank FD as you know it. They are on the right side of the law too.

Can you please refer me to an RBI circular or any court ruling giving these bas*##ds explicit rights to use the Term? Just want to cure my anxiety.

 

[j_s]

Some small finance banks are equal or more interest rates and are also insured. Again that's not the point. My point is why call it "Fixed Deposit"? I see it as a clear breach of public trust. They could have called it Super Deposit/Vijay Malya Punarvikas Fund or anything else but not FD.

Or CDs (corporate deposits) as are generally known.

 

[j_s]

Can you please refer me to an RBI circular or any court ruling giving these bas*##ds explicit rights to use the Term?

These laws are generally drafted to be exclusionary rather than inclusionary.

 

[Deleted member 11974]

The reason why they call it as a fixed deposit is becuase NBFCs are allowed to take deposits from customers and not demand deposits.Since FD and RD are time deposits nbfcs started calling it as FDs

 

[Tejo]

Can you please refer me to an RBI circular or any court ruling giving these bas*##ds explicit rights to use the Term? Just want to cure my anxiety.

Fixed deposit is a general word as the money deposited for Fixed number of days as per agreement of the parties.

You cant sue for using FD term.

 

[dvader]

These laws are generally drafted to be exclusionary rather than inclusionary.

Yes, I understand. Now here is the point, In India "fixed deposit" as a term has a meaning that transcends any Financial or economic stratum. So there should be more oversight over the use of this term.

For eg, In Spain it's common and acceptable to use the word Negro (Spanish for the color Black). But USA is a separate story.

The point is each country is different and although the laws are generally drafted to be exclusionary why not make an exception for Fixed Deposit? India makes exception for everything other thing.

 

[dvader]

Fixed deposit is a general word as the money deposited for Fixed number of days as per agreement of the parties.

You cant sue for using FD term.

What's criminal today was legal at some point in time. I hope someone wakes up and stops the use of Fixed Deposit for anything excepts what people understand it to be.

As I understand, these BA#*#rds didn't have to choose the term Fixed Deposit by law, they chose it just so they can make a fool of a common man. Therein lies my concern.

 

[Deleted member 11974]

in a country that has 20% of its population illiterate and 95% of its popularion financially illiterate do you think the government gives a damn to whether a person revolts or corporate governance or not?
the much bigger priority on hands is literacy and reducing income inequality
government neither has the time nor the resources for this

 

[Deleted member 11974]

also mis selling and over selling is a industry common practice of insurance banks nbfcs mfis
if you start applying the law uniformly and holding people accountable the industry would have to shut down due to lack of ethical buisness providers

 

[dvader]

in a country that has 20% of its population illiterate and 95% of its popularion financially illiterate do you think the government gives a damn to whether a person revolts or corporate governance or not?
the much bigger priority on hands is literacy and reducing income inequality
government neither has the time nor the resources for this

Yeah, absolutely correct. That's why I said, why not make solid laws regarding the use of certain terms known to the masses? There are just 4-5 such terms. One bill could save the life savings of an old man or a mother saving money for her daughter's marriage etc etc.

I am not talking about financial literacy, I don't trust any govt to do even basic things, forget about financial literacy. That's why a bill to save the public from the distrustful use of common terms.

My Driver lost INR 50000 in 2009 (saved for her daughter's marriage, 3 daughters), in a scheme that was basically an Endowment plan but sold as Fixed Deposit.

 

[j_s]

Yes, I understand. Now here is the point, In India "fixed deposit" as a term has a meaning that transcends any Financial or economic stratum. So there should be more oversight over the use of this term.

For eg, In Spain it's common and acceptable to use the word Negro (Spanish for the color Black). But USA is a separate story.

The point is each country is different and although the laws are generally drafted to be exclusionary why not make an exception for Fixed Deposit? India makes exception for everything other thing.

I think one can make a fair assumption that the RBI knows of this practice. For years, I might add. It has chosen not to act. You know who to blame.

 

[Deleted member 11974]

Yeah, absolutely correct. That's why I said, why not make solid laws regarding the use of certain terms known to the masses? There are just 4-5 such terms. One bill could save the life savings of an old man or a mother saving money for her daughter's marriage etc etc.

I am not talking about financial literacy, I don't trust any govt to do even basic things, forget about financial literacy. That's why a bill to save the public from the distrustful use of common terms.

My Driver lost INR 50000 in 2009 (saved for her daughter's marriage, 3 daughters), in a scheme that was basically an Endowment plan but sold as Fixed Deposit.

even if the govt has the intent to do so
it is a long way to reach there

 

[dvader]

even if the govt has the intent to do so
it is a long way to reach there

The end is nigh !!!!

 

[RAMESH BABU N]

Some small finance banks have equal or better interest rates and are insured. Again that's not the point. My point is why call it "Fixed Deposit"? I see it as a clear breach of public trust. They could have called it Super Deposit/Vijay Malya Punarvikas Fund or anything else but FD.

Edit: Fixed Typos

You are wrong in assuming that it is totally correct to call TERM DEPOSITS as Fixed Deposits. They are not Fixed in the true sense. A Bank FD (as you call a Term Deposit) is exactly not a fixed one - it can be withdrawn - prematurely - by losing some agreed interest.

However, the deposits with these NBFCs are TRULY FIXED DEPOSITS. No premature withdrawals or no loans/overdraft given against them.

DICGC coverage is mandatory for bank deposits - but not so for NBFCs - generally speaking.

Of late, NBFCs are also offering some hybrid models - loans against FDs, Credit/Debit cards against FDs - which work on ATMs,.....

Having worked extensively in Rural, Semi-urban, Urban, Metro n Specialized branches - for close to 40 yrs - be rest assured that the bank customers are well informed - more so - the TDR/STDR customers.

And, despite better rates offered by NBFCs, they find it difficult to get customers for their FDs. And, banks have reached almost every nook n corner - unlike NBFCs.

Well informed n risk taking investors (like me) also invest in NBFC FDs - like any other alternatives like NCDs, PCDs, Shares, TF Bonds, G-Secs, Gold Bonds....

As you are aware none of these have any insurance cover - some have Govt guarantees.