Company Deposits and Benefits to the Depositors

Indian financial system has a popular practice of acceptance of fixed deposit from the public by all the type of manufacturing firm and non-banking financial companies in the private sector.

The term deposit has been defined in 58A of the Companies Act 1956, as any deposit of money with and includes any amount borrowed by a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

Now-a-daya public deposits are a prominent source of finance to the companies. Non-banking companies and even big group of companies resort to acceptance of deposits from public owing to number of advantages available like:

1. Funds are available at low cost.

2. There is no need to provide security.

3. Process is very simple and no restrictive covenants are involved.

4. Restrictions put by the RBI on financial institutions to advance, to prevent hoarding and black marketing leads the companies to accept deposits from the public.

5. Tax deductibility of interest paid on deposits.

Benefits to the Depositors:

1. High rate of interest

2. Maturity period is relatively short.

The companies (Acceptance of Deposit) Rules, 1975 require the companies to comply with the following for accepting deposits:

1. Limit upto which deposit can be accepted.

2. Maximum interest and brokerage payable, on deposits.

3. Maintenance of liquid assets.

4. Issue of advertisement or statement in lieu of advertisement,

5. Form to be supplied to the company,

6. Receipt to be supplied by the company.

7. Register of deposits

8. Return to be filed with the Registrar

9. Penalties for default.