business.gov.in Procedure for Acceptance of Public Deposits

Organization : Government of India
Facility : Procedure for Acceptance of Public Deposits

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Public Deposits :

Public deposits are an important source of financing the medium-term and long-term requirements of a company.

Related : Business Portal of India Procedure for Registration of Partnership Firm : www.statusin.in/3311.html

The term ‘public deposit’ implies any money received by a company through the deposits or loans collected from the public. The public includes the general public, employees and shareholders of the company but excludes the money received in the form of shares and debentures.

In India, this method of raising finance has gained a lot of importance because of the several advantages relating to public deposits :
** It is an easier method of mobilising funds, especially during periods of credit squeeze.
** The administrative cost of deposits for the company is lower than that involved in the issue of shares and debentures. The procedure of inviting public deposits is also simpler and involve lesser formalities.
** It helps the company to borrow funds from a larger segment of public and thus reduces the dependence of the company upon financial institutions.
** It also enables the company to create contact with a large number of investors.

But this mode of financing through public deposits has its own limitations :
** As the public deposits are more likely to be affected by the uncertain conditions in the economy, the depositors response may vary accordingly. They may also tend to withdraw their deposits if the company is not performing well.
** Public deposits with the companies may cause a diversion of resources into non-priority and undesirable areas.
** Professional investors may not like to invest in such deposits as there is no or less chance for capital appreciation.
** As public deposits are unsecured, the depositors may have to bear the risk of loss of money in the event of failure of the company.
** Their widespread use restricts the growth of a healthy capital market. They also tend to distort the interest rate pattern of the economy and may result in the dearth of sound industrial securities.

Regulating Public Deposits :
The public deposits are regulated by the provisions of the Companies Act and the Companies (Acceptance of Deposit) Rules,1975.

According to them, the following amounts are not included in the expression ‘deposits’ :
** Any amount received by a company from any other company
** Any amount received from an employee of the company by way of security deposit
** Any amount received by way of subscriptions to any shares, stock, bonds or debenture pending the allotment of such shares, etc., and calls in advance on shares
** Any amount received in trust or any amount in transit
** Any amount received from directors of the company or from its shareholders by a private company