Inter corporate deposits are deposits made by one company with another company, and usually carry a term of six months. The three types of inter-corporate deposits are: three month deposits, six month deposits, and call deposits.
Three month deposits are the most popular type of inter-corporate deposits. These deposits are generally considered by the borrowers to solve problems of short-term capital inadequacy. This type of short-term cash problem may develop due to various issues, including tax payment, excessive raw material import, breakdown in production, payment of dividends, delay in collection, and excessive expenditure of capital.
The annual rate of interest given for three month deposits is 12%. 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%. The concept of call deposit is different from the previous two deposits. On giving a one day notice, this deposit can be withdrawn by the lender. The annual interest rate on call deposits is around 10%.
The inter-corporate deposits market shows a number of interesting characteristics. The biggest advantage of inter-corporate deposits is that the transaction is free from bureaucratic and legal hassles. The business world otherwise is regulated by a number of rules and regulations.
The existence of the inter-corporate deposits market shows that the corporate world can be regulated without rules.
The market of inter-corporate deposits maintains secrecy. The brokers in this market never reveal their lists of lenders and borrowers, because they believe that if proper secrecy is not maintained the rate of interest can fall abruptly.
The market of inter-corporate deposits depends crucially on personal contacts. The decisions of lending in this market are largely governed by personal contacts.