Last Updated on August 30, 2021 at 8:57 am
When bank fixed deposits decreases, as usual, senior citizens ignore credit risk and chase after “high return corporate FDs”. The latest craze, Tamil Nadu Power Finance Fixed Deposit offering up to 9.11% return on a 36 to 60-month deposit for senior citizens. Here is what you need to know about these allegedly “Absolute Safety & Assured Income” FDs.
Are Tamil Nadu Power Finance Fixed Deposits guaranteed by the Tamil Nadu Govt? No, they are not. The claim of “Absolute Safety & Assured Income” made on their webpage is only a sales pitch. Their ability to pay interest on time will depend on their financial situation. Hundred per cent govt-owned does not mean 100% safe. The EPFO is also govt owned but has been chronically delaying interest payment: Delay in EPF interest payment: Is there a loss to subscribers?
Are Tamil Nadu Power Finance Fixed Deposits safe? They are relatively safer than a private corporate deposit. That does not mean interest payments will always be paid on time. It only means, eventually you would get your money back because of the TN governments involvement if the power finance corporation gets into trouble.
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What does the Tamil Nadu Power Finance and Infrastructure Development Corporation Limited do? It is a Non-Banking Finance Company wholly owned by the Tamil Nadu Govt. It borrows money from the public via bonds and deposits and offers loans to only one company: Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) aka Tamil Nadu Electricity Board (TNEB).
Are Tamil Nadu Power Finance FDs covered by deposit insurance? No.
What are the risks associated with Tamil Nadu Power Finance Fixed Deposits?
- Since they lend only to the TNEB, the profitability of one affects the other. TNPFs profit after tax fell from 129.74 Crores n FY 2016-17 to 87.68 Crores in FY 2017-18 and to 83.20 Crores in FY 2018-2019.
- TNPF’s capital adequacy ratio fell to 7% in March 2019 as against the recommended minimum of 10%. This is a measure of how capable a borrower is of meeting its obligations in case there is a dip in profitability. The TN govt had to infuse capital to bring back up to 12% as of March 2020. Source: Brickworks rating rationale
- TNEB has estimated a loss of Rs. 1260 crores due to the lack of demand after the lockdown. This means the fate of both corporations (TNEB and TNPF) are heavily dependent on the economic stimulus package announced for power distribution companies.
- Tamil Nadu governments backing is the prime selling point for these FDs. However, like most state governments, the TN govt is bankrupt due to the lockdown. Therefore this would be a case of the centre printing money (digitally, not literally) to aid the TN govt. Then the TN govt using it to aid TNEB and the TNPF.
Can senior citizens invest in Tamil Nadu Power Finance Fixed Deposits? Yes, but only to a small extent which will not change their lives much. Better to have the financial backing of their children, just in case.
Can we invest online in Tamil Nadu Power Finance Fixed Deposits? Yes. In a savvy move, the corporation has made online investing possible.
What is the minimum investment? Rs. 25,000 and above that in multiple of Rs. 1000.
What are the interest rates and duration details? There are two options, regular interest payment (ominously labelled RIP) and a cumulative option.
Interest rates for regular payment
| Non-senior citizens | |||
| Period (Monthly) | Monthly (%) | Quarterly (%) | Annually (%) |
| 24 | 0 | 7.8 | 0 |
| 36 | 8.25 | 8.31 | 8.57 |
| 48 | 8.25 | 8.31 | 8.57 |
| 60 | 8.25 | 8.31 | 8.57 |
| Senior Citizens aged 58 and above | |||
| Period (Monthly) | Monthly (%) | Quarterly (%) | Annually (%) |
| 24 | 0 | 8.05 | 0 |
| 36 | 8.75 | 8.81 | 9.11 |
| 48 | 8.75 | 8.81 | 9.11 |
| 60 | 8.75 | 8.81 | 9.11 |
Interest rates for cumulative payment
| Non-senior citizens | |
| Period (Monthly) | Base Rate (% pa) |
| 12 | 7.5 |
| 24 | 7.75 |
| 36 | 8.25 |
| 48 | 8.25 |
| 60 | 8.25 |
| Senior Citizens | |
| Period (Monthly) | Base Rate (% pa) |
| 12 | 7.75 |
| 24 | 8 |
| 36 | 8.75 |
| 48 | 8.75 |
| 60 | 8.75 |
Is premature withdrawal allowed? Yes, after three months. No interest will be paid if withdrawn before six months. Above that, a penalty of 2-3% on the applicable interest rate would be levied! That is steep!
Can we invest in these deposits? The short-term nature of these deposits is both a plus and minus. A plus because the money is not locked in for too long. A minus because they would be subject to high reinvestment risk – lower rate on fresh deposits on maturity. Older TNPF FD rates were close to 10.5% and now about 8.75-9%.
The govt backing is only an on-paper placebo and does not guarantee timely interest payments. All it means is, the govt will bail out the corporation if it is in trouble (it already is because TNEB is in trouble). With the govt itself in trouble due to the lockdown, how quickly it will be able to rush to the aid of TNPF is a big question mark.
Therefore, if you wish to invest, have only a small exposure. Senior citizens are better off keeping the majority of their cash with PM Vaya Vandana Yojana (2020), Senior Citizens Savings Schemes, post office deposits and certificates and FDs from too big to fail banks like SBI. TNPF deposit can only be a post-meal paan. Not the main course. Entirely optional and eminently avoidable.