Cos find FDs a better route to raise funds in tough times

MUMBAI: Corporate fixed deposit schemes that offer better rate of returns than banks are on the rise, as companies try to raise cash in a difficult credit market where institutional lenders have become highly selective. Apollo Hospitals, Ceat, DHFL, Exim Bank, HDFC, Hudco, ICICI Home Finance, NHB, PNB Housing Finance, LIC Housing Finance, Godrej Industries, Jindal Stainless, Hudco, Jaiprakash Associates and Unitech are some of the firms that have launched FD schemes, of late.

According to Harish Sabharwal, chief operating officer of Bajaj Capital, over three dozen such companies are currently raising funds through FDs. He said while some companies are offering reasonably good returns, the risk involved is higher than bank deposits.

Corporate FD schemes typically target conventional savers, retirees and pensioners.



Companies that are offering 10% or more interest for a three-year FD, include Ceat, DHFL, Gabriel India, Ind-Swift, JK Laxmi Cement, Jagatjit Industries, Jaiprakash Associates, JCT, Jindal Stainless, JK Paper, Shriram Piston, Solaris Chem Tech and Unitech, among others. Experts say investors should track the financials of the company and also the track record of the management, as company FDs are riskier as these are unsecured deposits.

Though companies are offering better returns than bank deposits, wealth managers say checking the fundamentals and credit ratings of the company are very important. Fixed deposit schemes launched by finance companies such as Canfin Homes, HDFC, DHFL, Exim Bank, ICICI Home Finance, LIC Housing Finance and Tamil Nadu Power Finance, among others, are offering around 6.5-9% over 1-3-year horizon.

Experts tracking rates say interest rates offered by some of the above companies have gone down 100-200 basis points over the rates offered six months ago.

Sriram Venkatasubramanian, head ��� wealth management ��� FCH Centrum Wealth Managers said many companies have reduced the interest rates since March and some of them have stopped taking deposits.

���Even the extra premium for bulk deposits is not there any more. The rates offered by banks are much below,��� he said.
State Bank of India is currently offering an interest of 7% per annum for its 1-2 year term deposits and 7.25% for 2 years to less than 1,000 days.
According to Mr Venkatasubramanian of FCH, investors should look at short-term paper, say, of one year only, as blocking money for three years is risky despite higher returns offered for longer duration.

Lately, retail non-convertible debentures (NCD) are another instrument that has caught the investor fancy. Tata Capital and Shriram Transport Finance raised significant amount through this route. L&T Finance will be raising up to Rs 1,000 crore through NCDs offering a yield on redemption of up to 10.5%.