Apart from raising short-term funds through Commercial Paper (CP), companies can also borrow from one another through the Inter-Corporate Deposit (ICD) market.

An Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and FIs from other corporate entities registered under the Companies Act 1956.Companies having surplus funds may lend to other companies that require short-term finance.

How the ICD Market Works?

The Central Government issues both:
- Treasury Bills
- Government Bonds or Dated Securities
The State Governments issue only long-term dated securities, known as State Development Loans (SDLs).The State governments do not issue any treasury bills.

Key Features of Inter-Corporate Deposit (ICD)

Unsecured Borrowing: ICDs are not backed by collateral, which makes them riskier than secured money-market instruments.
Corporate-to-Corporate Lending: The transaction takes place directly between companies.
Interest Rates:
- Since ICDs are unsecured and not backed by collateral, lenders generally demand a higher rate of interest to compensate for the additional credit risk.
- The interest rate on an ICD largely depends on the creditworthiness of the borrowing company. A company with a strong short-term credit rating can generally borrow at a lower rate, while a company with a weaker credit profile has to pay a higher rate to compensate the lender for greater credit risk.
Tenor:The maturity of an Inter-Corporate Deposit may range from 1 day to 1 year, although a tenor of around 90 days is commonly used in the market.

Primary Dealers and ICDs

Primary Dealers (PDs) are permitted to raise funds through Inter-Corporate Deposits according to their funding requirements.
The borrowing under ICD is restricted to 150% of the Net Owned Funds and the minimum tenor of borrowing is for 7 days.
However, Primary Dealers cannot lend in the ICD market.

FAQs

1. What is an Inter-Corporate Deposit (ICD)?

An Inter-Corporate Deposit is an unsecured borrowing by a corporate entity from another corporate entity. It enables companies with surplus funds to lend to companies requiring finance.

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