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  • Public Deposits

    •   Corporates can raise funds from the public in the form of Fixed Deposits. These deposits are unsecured and are
      mainly used for the working capital requirements. These unsecured public deposits are governed by the
      Companies (Acceptance of Deposits) Amendment Rules 1978.

      Under this rule:
      i) Public Deposits cannot exceed 25% of the share capital and free reserves.
      ii) The maximum maturity period is 3 years while the minimum is 6 months.

      The use of deposits as a major means of financing by corporates     has been on the decline in recent times.
      This has been due to a number of factors

    • Deposits are generally received from retail sources and hence only companies with a long-standing record are able to raise substantial sums though these.
    • The retail nature also results in high costs (on brokerage, processing and printing). In case of well-established companies, the access to funding through CPs, syndication, bank limits at attractive interest rates, medium term loans from FIs has reduced the attractiveness of the deposits to these entities.
    • Public deposits as a means of investments has also lost importance on the part of the public on account of a number of newer avenues emerging such as bonds of Financial Institutions and mutual funds (income schemes) which give them the benefit of a far more diversified portfolio and flexibility of withdrawal (in case of mutual funds).

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