Sowmya Sundar
N.S. Vageesh

Chennai , Dec. 5

BANKS may have raised interest rates on their deposits, but manufacturing and finance companies are in no hurry to follow suit.

Companies, in fact, don't find fixed deposits an attractive source of funds at all. They cost a lot even now (about 2-3 percentage points more than what they get from other sources such as banks). And they are cumbersome to service.

The fixed deposit base of companies has shrunk. The deposit base of about 543 companies (that accept public deposits) has gone down from around Rs 11,583 crore in March 2000 to Rs 7,246 crore in March 2004.

Says, Mr P. Vaidyanathan, Chairman, Integrated Enterprises (India) Ltd, which mobilises deposits for companies, "The fixed deposit market is dead. Most companies are offering rates between 7 and 8 per cent. These rates are available in Government small savings schemes. Most of the money is going to these instruments and mutual funds."

And companies do not seem to have any incentive to offer higher rates even in a rising interest rate scenario. A few companies such as Fenner India and India Cements have actually reduced rates further in recent weeks.

The company secretary of a top auto-component firm says, "I am sitting on tonnes of money. Why do I need to raise deposits?" He elaborates further: "We get our working capital from banks at 6.75 per cent. As for export finance, we get it at about 2 per cent per year. So raising money through fixed deposits is not attractive at all. We are not taking any fresh deposits, just renewing the old deposits. We are doing that as a welfare measure since a big chunk of our deposit holders are pensioners and widows."

The small value of deposits can also pose a pinprick for companies. Deposits of less than Rs 21,000 in a company are classified as small investor deposits. This entitles the investor to approach the Company Law Board for even the smallest of problems - a delay in receiving the interest warrant, for instance. "Most companies don't think it is worth raising money through this channel for the kind of problems and the litigation that they face with FDs," Mr Vaidyanathan said.

Asked if they would be raising rates in the near future, Mr T.T. Srinivasaraghavan, Managing Director, Sundaram Finance, says, "We are still not under any pressure to raise rates as our rates are still higher compared to banks even after the recent revision. On the down curve, banks reduced their rates far more aggressively than we did. So we don't intend to raise rates at least in the next two months."

Mr Peter D.F. Cardozo, Managing Director, CanFin Homes, says he is comfortable for now, as the cost of other sources of funds has still not risen. "With an improvement in the rating for our company, there is no immediate need to raise deposit rates. But we will wait and watch for another two to three weeks," he said.

A spokesperson at Bajaj Capital, another large mobiliser of funds for other companies, agrees that there are no indications of a rate hike for fixed deposits of manufacturing companies. He, however, suggests that one should invest in short-term deposits for the time being and take a call later.

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