Companies tempt retail investors with FD plans

AFTER NEARLY FOUR years, companies in the manufacturing space have turned to fixed deposits (FDs) and are tapping into retail liquidity amid lower bank deposit rates and tightening credit conditions.

- MAHESH NAYAK

Godrej & Boyce and Hawkins Cookers recently announced FD schemes - a move that many in the industry found to be interesting.

“While financial services firms have long relied on fixed deposits to raise funds, the reentry of manufacturing companies into this space marks an interesting shift,” said Venkatkrishnan Srinivasan, founder and managing partner at Rockfort Fincapare increasingly drawn to retail deposits as an alternative tomore expensive bankloansor nonconvertible debentures (NCDs), especially when their credit ratings fall below the threshold for competitive institutional borrowing, he added.

“For a firm rated AA-minus, tapping the NCD market, especially for unsecured borrowing, couldcost around orabove 10%. By offering retail FDs at around 8% for 36 months, they can lower their cost of funds by nearly 2 to 2.5%,” Srinivasan said. This arbitrage is particularly attractive in a market where bank FDs hoverbelow 7%,making corporate FDs appear lucrative to retail investors.