One of the most utilised money market instruments, ICDs are the hallmark of lending
and borrowing between companies and high-networth individuals. Usually backed by a
security, (typical security being shares) ICD is normally for three months, but higher
and shorter periods are also prevalent depending upon the needs. Normally the maximum
time frame of an ICD is six months. But ICDs are rollable (turned over from one period
to another) and can extent to any period with the mutual consent of the lender and the
borrower.
It is one of the instruments which many cash rich corporates like to park their funds in
as the security is good and the interest rate is much higher than what they would get
from banks for the same time period. Risks of default are also much higher and it is
normally not possible to offload the securities in the market, as the market may not be
able to absorb the same.
Importance of personal contacts cannot be denied as this market operates from word
of mouth and no advertising is done because it could harm the reputation of the corporate
borrowing through ICDs. One of the top criteria for getting ICDs is the credibility of
the company in the market, the lessor the credibility the lower the chances of getting
the ICDs and the higher the interest rate the company may have to pay.
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9 Comments. Leave new
Good work
Nice one.
It is good but could have elaborated more on the topic.
Good effort..!
Great!
nice
Good article.
informative and precise !
Great work