A deposit made by one company to another normally for a period up to 6 months is referred to as an inter-corporate deposit. Such deposits are usually of three types:
- Called deposits: In theory a called deposit is withdraw able by the lender on a day’s notice. In practice, however the lender has to wait for at least three days. The interest rate on such deposits may be around 16% p.a.
- 3 months deposits: More popular in practice, these deposits are taken by borrower to tide over a short term cash inadequately that may be caused by one or more of the following factors, disruption in production, excessive imports of raw materials, tax payments, delay in collection, dividend payable and planned capital expenditure. The interest rate on such deposit is around 80% p.a.
- 6 months deposits: Normally, lending companies do not extend deposits beyond this time frame. Such deposits usually made with first class borrowers carry an interest rate of around 20%p.a.
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