2. Inter-Corporate Deposit is essentially a short
term assistance provided by one corporate
with surplus funds to another in need of funds.
3. • Kingfisher Airlines owes Rs 260 crore to
Airports Authority of India (AAI) for using their
infrastructure across airports in the country.
However, KFA has assured to make payments
through inter-corporate deposit (ICD) from UB
4. Sources of Funds
• We have already learnt a lot about long and
medium term sources such as :-
And so on…………………..
5. Here we will try and concentrate more on short term
1. Trade credit
2. Bank credit
– Loans and advances
– Cash credit
– Discounting of bills
3. Customers’ advances
4. Installment credit
5. Loans from co-operatives
6. Merits of short-term finance
c)No interference in management
d) May also serve long-term purposes
Demerits of short-term finance
a) Fixed Burden
b) Charge on assets
c) Difficulty of raising finance
7. ICD- an introduction
• An Inter-Corporate Deposit (ICD) is an unsecured
borrowing by corporates and FIs from other corporate
entities registered under the Companies Act 1956. The
corporate having surplus funds would lend to another
corporate in need of funds.
• This lending would be an uncollateralized basis and
hence a higher rate of interest would be demanded by
the lender. The short term credit rating of the
corporate would determine the rate at which the
corporate would be able to borrow funds.
8. • Further the credit spreads demanded even for
the top rated corporates would be higher than
similar rated banks and the rates on ICDs
would higher than those in the Certificate of
Deposit (CD) market.
• The tenor of ICD may range from 1 day to 1
year, but the most common tenor of
borrowing is for 90 days.
9. ICD- features
1. Given by cash rich companies to low rated, cash
starved companies unable to get a loan.
2. Unsecured loans but may be collateralized sometimes
for weaker companies to get benefit of credit
3. Interest rates are higher than bank rates
4. The risk premium is added in ICD.
10. 5. It is considered as the LAST RESORT as a source
6. Primary Dealers cannot lend in the ICD market.
7. The money is locked in for the specified period.
8. It is shown as “investments” in the balance
• Immediate capital for short term
• Transactions are free from bureaucratic and
• Better than bank loan
12. • Helpful for not so credit worthy companies as
they find difficult to raise funds from other
• And it is a unsecured borrowing so doesn’t
create any charge on the company’s assets.
• The rate of interest is higher than other short
term sources such as COD or short term bank
loan as it factors in the risk premium.
• It is not a reliable source as there is no formal
market for it and depends mostly on inter-
corporate relations. Its not like in the case of a
bank loan you have option of so many banks
you need to have contacts.
The stock market scam of 2001 was one of the
biggest scams in the history of India. Stock
markets saw an unbelievable rise in some of the
stocks for instance prices of visualsoft rose from
Rs 625 to Rs 8448.It was found out that prices
were being rigged and a quantum of the funds
for rigging the prices came from inter corporate
• 3-month deposits- These deposits are
generally considered by the borrowers to
solve problems of short-term capital
inadequacy. The annual rate of interest given
for three month deposits is 12%. This type of
short-term cash problem may develop due to
16. • 6 month deposits- Six month deposits are
usually made with first class borrowers, and the
term for such deposits is six months.
The annual interest rate assigned for this type of
deposit is 15%.
• Call deposits-Call deposits are the ones which
can be called back any time with one day prior notice.
The interest rates on such deposits is generally around
17. ICD-general terms
• Issuer: Corporate having short term funds lend to corporate
in need of funds
• Rating: ICD is a non-public instrument. Hence, it is not
• Coupon terms: The interest rate is normally fixed and
payable on maturity. The range of interest
varies, depending upon the quantum, tenor, and the credit
rating of the borrower.
18. • Day count convention for interest payment: Interest to be
calculated on an actual/365-day year basis
• Maturity: 90-180 days
• Market Participants: Cash rich corporate, Public Sector
Undertakings, Non Banking Finance Companies and Financial
Institutions. Brokers play an important role in
procuring/placing of funds.
• Minimum denomination and transaction size: no fixed
denomination or transaction size
19. ICD-prevention of misuse
The following measures have been taken based on
recommendations of the joint parliamentary committee
and the RBI after the 2001 scam :-
• Cant exceed 60% of paid up capital or 100 % of free
• Defaulted co's not allowed to extend loan
• Interest rate should be higher than prevailing bank rates
• CDs accepted from parent/promoter/group companies
or any other related party should be on "arms length
basis" and disclosed in financial statements as "related
• ICD’s are a hassle free source of fund as compared
to other short term sources from banks and COD’s
as these involve lot of legal formalities.
• Also less creditworthy company cannot acquire loans
from banks and public as they don’t have a goodwill
in the market. ICD’s are the way out for them.
• ICD’s can be a way by which companies from the
same parent group can help each other in times of
• ICD’s received- as unsecured loans as Inter
Corporate deposits(you also need to disclose
the amount payable within one year).
• ICD’s made- as under loans and advances as
Inter Corporate deposits.
• Just to get an idea of interest rates of ICD’s, lets have a
look at the interest rate offered by Gujarat State
Financial services(an intermediary).
• GSFS pays interest rate for the different tenors towards
the Inter Corporate Deposits placed by various
Government of Gujarat entities. The present interest
rates offered by GSFS for different tenors are as under:
23. ICD Tenure ICD Rate
15 days to 90 days 7.00% p.a.
91 days to 180 days 8.00% p.a.
181 days to less than 1 year 8.50% p.a.
1 year to 3 years 9.00% p.a.
Interest to be paid on premature withdrawal of ICD at 0.50%
below the rate applicable for the period ICD has remained with
GSFS. However, to extend more benefits to GoG entities, in
cases of partial premature withdrawals, the remaining principal
amount of ICD will continue at the original rate till maturity.