Company deposits back amidst falling bank rates
By Neelima Shankar
Dec 10, 2009
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Amidst declining bank FD rates, company deposits are slowly becoming popular amongst investors.

Leading public sector banks like SBI and PNB have already trimmed deposit rates by 0.25-0.50 basis points across certain tenures. Dhanalakshmi bank has also reduced its FD rates by 0.25-1 percent.

With bank deposits offering rates in the range of 6-7 percent, customers are being lured by more attractive corporate deposits which are offering 8-11.5 percent.

Currently even the debt funds are not yielding great returns. They are fetching returns around 6-7 percent. This is another reason that 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.

Unitech, a leading player in real estate, is offering 12 percent for a three-year deposit. Surya Roshni and Shriram Transport Finance are offering 11.5 and 10 percent respectively for a deposit of three 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, an investor is at risk of losing money in case the company goes in for liquidation.
Non- banking finance companies have to get themselves rated by any of the agencies like CRISIL, ICRA and CARE. The manufacturing companies need not do that.


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