CorporateAs bank rates fall, company deposits are back
With bank deposit rates in a free fall for the last one year, company fixed deposits have started finding many takers.
- MF investment:Take your pick - "Growth is not getting translated into participation in markets" - IIFCL lowers ticket size for bond investment to attract HNIs - SBI: Releasing the capital bottleneck - Auto loan: Private lenders step on the gas - GMR raising Rs 13,000 cr for power, road projects
With deposits rates being offered by major public sector banks at 6-7 per cent, investors are finding attractive options in corporate deposits, which are offering 8-11.5 per cent. At a time when even debt funds are not giving more than 6-7 per cent returns, a number of retail investors and high net worth individuals (HNIs) are investing in company deposits.
“Investor interest has certainly gone up, mainly due to the huge gap of 200-500 basis points (bps) in the rates being offered by banks and companies. Also, the risk appetite has returned and so people are allocating 5-10 per cent of their portfolio to company deposits as compared with negligible exposure a few months ago. There are a number of reliable compnies which are offering attractive rates”, said Yogesh Kalwani, head of advisory at BNP Paribas Wealth Management.
New Delhi-based real estate developer, Unitech, is offering 12 per cent for a three-year deposit. Surya Roshni and Shriram Transport Finance are offering 11.5 and 10 per cent, respectively, for a three-year deposit. Market players say there will be more offers from companies in sectors that are yet to come out of the slowdown. Besides, banks have been aggressive in cuting deposit rates. State Bank of India (SBI) has cut rates to 6-6.25 per cent for deposits of one-two years.
“There are close to 50 companies mobilising fixed deposits at present. But the apetite is for companies with a good brand value and high interest rates. Some of these companies have collected in excess of Rs 100 crore in the last two months. On the fixed-income side, company deposits continue to remain a preferred choice,” said Sriram Venkatasubramanian, head, FCH Centrum wealth Management.
However, company deposits are unsecured, which means there is no lien on any asset of the company in case it goes into financial difficulties.
Non-banking finance companies (NBFCs) that moblise fixed deposits need to get themselves rated by agencies such as CRISIL, ICRA and CARE. Manufacturing companies do not have such a compulsion.
“The two factors people consider are rate and safety. We are definitely recommending some of these schemes. However, mutual funds are a tax-efficient way to invest in corporate deposits as they also hold commercial papers of several companies”, said Rakesh Rawal, head, private wealth management, Anandrathi Financial Services.
Experts said the intercorporate deposit market, where corporates borrow from HNIs and ultra-HNIs on a private basis, was also active. The companies that are unable to raise funds and have lower ratings are offering as high as 16 per cent. “Many ultra HNIs are okay with lower-rated corporates if the duration of the deposit is small. These are private deals between promoters and HNIs”, said a distributor.