Many of you may be aware that current account holders have never earned a rate of interest for money in bank. This is prima facie because, the present regulations (of the Reserve Bank of India) prohibit offering a rate of interest on current accounts. Thus very often corporate treasuries and other smaller business organizations in order to earn a return on investment in the intermediate prefer to park their short-term requirement of funds in investment avenues such liquid fund, ultra-short term funds or shorter tenure bank fixed deposits (FDs) - which at present have a minimum tenure of 7 days. But now if the RBI honours the request of country's largest bank – State Bank of India (SBI), it could leave open an option for many to invest in a FD with a minimum tenure of even 3 days |
| · The tax-free infrastructure bonds which are designed to encourage long- term investment in infrastructure have flooded the markets in the recent times, but they haven't been able to attract many investors leading to their total issue size being underutilized. For instance, according to merchant bankers Rural Electrification Corporation (REC) fell short of its aim to raise Rs 4,500 crore through tax-free bonds, attracting just Rs 2,100 crore earlier this month. Likewise Power Finance Corporation (PFC) which launched its tax-free bondissue after REC has been able to garner just about Rs 670 crore worth of bids and therefore had to extend its closing till Thursday, December 27, 2012 (from the December 21, 2012 as planned earlier).
We are of view that the retail investors have not perceived yields to be very luring attractive and therefore the interest evinced in tax-free bonds has been pretty lacklustre. Many companies too have stayed away from investing in tax-free bonds on the fear of contravention of provision in the company law. According to section 372A(3) of the Companies Act, 1956, "no loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934." Hence companies have refrained from investing in inter-corporate deposits. Going forward too, for the ensuing issues of tax-free bonds in the current fiscal, we think there would be lacklustre participation due to not very attractive yields and provision in the company law acting as a deterrent for companies to invest as well. Best Regards Prakash Nair · |
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