Corporate Public Deposits

It is a fixed deposit scheme offered by a company. It works similar to a bank deposit where you earn interest income. It may not be as safe as a bank deposit. This is primarily because banks in India have the backing of the central government. Company deposits enjoy no such benefit. Furthermore, company deposits are 'unsecured'. This means, you have no lien on any asset of the company, in case it goes into financial difficulties and is wound up.

NBFCs that offer FDs need to mandatory get them rated by rating agencies such as CRISIL, ICRA, CARE, etc. Checking the rating of the FD is a must before investing money. For instance, a company FD with a AA rating can be considered a good investment. Also, check the company's past record in making timely interest payments before you invest. Company FDs offer much higher returns than bank FDs, since they entail higher risks. The higher the risk, the higher is the interest rate offered. While the higher return may be tempting, the safety is lower. Since you are investing in FDs because you are risk averse, it may make more sense to go with companies that have high ratings. The companies offers higher interest to the investors over public deposits. The rate of interest, however, varies with the time period of the public deposits. The companies generally offer 9% to 10% interest rate on the deposits made for 1 year. The companies offer 10% to 11% interest rate over public deposits for 2 years while 11% to 12% interest rate is offered for the 3 year deposits.

The various advantages of public deposits enjoyed by the companies are:

There is no involvement of restrictive agreement The process involved in gaining public deposit is simple and easy The cost incurred on issue is reasonable Since there is no need to pledge security for public deposits, the assets of firm that can be mortgaged can be preserved

The disadvantages of public deposits from the company's point of view are:

The maturity period is short enough Limited fund can be obtained from the public deposits

The advantages of public deposits enjoyed by the investors are:

The interest rate is higher than the other financial investment instruments The fund maturity period is short

The disadvantages of public deposits from the investors' pint of view are:

The interest charged on the public deposits e tax exemption There is no pledging of security against public deposits

Section 58-A and Companies Acceptance of Deposits Rules, 1975 made there under contain the restrictions and limitations subject to which deposits may be

invited and accepted by companies. The provisions of the section as amended by the Amendment Act, 1988 and summary of the important rules as follows:
1.

Deposits not to be invited Without Issuing an Advertisement: No company shall invite or accept any deposit except after the publication of an advertisement specifying therein the financial condition, management structure and other specified particulars of the company. The advertisement shall be made in a leading English newspaper and in one vernacular (local language) newspaper circulating in the State in which the registered office of the company is situated. The advertisement must contain reference to the conditions subject to which deposits shall be accepted by the company. Deposits Not Allowed in case of Default in Repayment: The company cannot invite or allow any other person to invite or cause to be invited on its behalf any deposit, if the company has made a default in the repayment of any deposit or part thereof and any interest thereupon in accordance with the terms and conditions of such deposit.

2.

3.

Premature Repayment of Deposits: If a company makes repayment of deposit after a period of 12 months but before the date of maturity, the rate of interest payable on such deposit shall be less by 1% from the rate that is applicable for the period for which such deposit has run, for example, suppose that a deposit was received for period of three years and the rate of interest was 14%. If such a deposit is repaid on the expiry of second year and if the rate of interest for a 2-year maturity deposit was 13%, then the interest payable will be 12% (13%-1%).

4.

Furnishing of Receipts to Depositors: Every company shall, on the acceptance or renewal of a deposit, furnish to the depositor or his

agent a receipt for the amount received by the company within period of eight weeks from the date of receipt of the money. The said receipt shall be signed by an officer of the company duly authorized by the company in this behalf.
5.

Deposits payable on demand: A company cannot accept or renew deposits payable on demand.

6.

Interest on Deposit:. Presently, companies are allowed to offer interest not exceeding 12.5 per cent per annum.

7.

Ceiling on Deposits: The public deposits of a company cannot exceed

25% of the aggregate of the paid-up share capital and free reserves of the company in case of issue to the public and 10% of the paid up share capital and free reserves in case issue is to the shareholder and others
8. Period OF fixed deposit: The maximum maturity period for a public

deposit is 3 years and for NBFC it is 5 years. The minimum maturity period for public deposits is 6 months.
9. Maintenance of liquid assets: Every company shall before the 30th

day of April of each year deposit or invest, as the case may be, a sum which shall not be less than 15 per cent of the amount of its deposits maturing during the year ending on the 31st day of March next following in any one or more of the following methods, namely deposits in bank account and encumbered securities of the government

10. Registers of deposits:

i. Every company accepting deposits shall keep at its registered office one or more registers in which there shall be entered separately in the case of each depositor the following particulars, namely: name and address of the depositor; date and amount of each deposit; duration of the deposit and the date on which each deposit is repayable; rate of interest; date or dates on which payment of interest will be made; any other particulars with respect to deposit ii. The register or registers referred to in sub-rule (1) shall be preserved in good order for a period of not less than eight calendar years from the financial year in which the latest entry is made in the register. Evolution of Company Fixed Deposit It basically grew out of the need of Corporate Sector for raising short term finance and requirements especially for working capital of small investors to earn superior returns as compared to returns offered by the Banks. The concept of company fixed deposits was started in India in 1964 by Bajaj Capital Ltd. by launching first ever Company Fixed Deposit of Oberoi Group - East India Hotels Ltd.(now EIH Ltd.).The success of East India Hotels prompted others private and public sector companies which started accepting deposits from public. Since then company deposit market has grown by leaps and bounds. Today, company deposit market has grown to approximately Rs.25,000 crores.

Hundreds of top companies belonging to reputed industrial houses like Tata, Birla, Escorts, Godrej etc. and government companies like HUDCO are accepting deposits from public. The numbers of depositors have increased to around 5 million. Fixed deposit issued by Companies 1. Tata Motors Indias leading auto maker has announced a new Fixed Deposit scheme in a bid to raise good fund from the public to beat the credit market slump. This scheme offers a 10% for a one-year deposit, with senior citizens getting 0.5% more. The company has also also approval to rise up to Rs 1,931.5 crore from the public through Fixed Deposit. The move comes at a time when the company is shifting production base of its Nano small car project and trying to raise cash to refinance the $3 billion debt related to the acquisition of Jaguar-Land Rover. Last month, the company announced a rights issue which was bailed out by the promoters and underwriters in the absence of response from the shareholders. The rights issue had raised Rs 4,145.8 crore.Tata Motors consolidated cash and bank balances stood at Rs3833 crore at the end of FY 08, while it had generated a cash flow (net -profit plus depreciation) of Rs1057 crore in the first half of FY 09.The companys net debt to equity was 0.495 in FY 08 and 1.08 by the end of FY 10, according to Citigroup. As Tata Motors have already been rocking with its insurance and other economic policies, there is no more doubt for the support from new investors.

2. Sejal Arcitureal glass forays Limited (SAGL), a leading player in the architectural glass solutions, as part of its strategic initiative to reach out to the masses, has introduced a fixed deposit scheme by inviting deposits from the public, shareholders and employees of the company. SAGL has offered non-cumulative and cumulative fixed deposit schemes for a period of 1, 2 and 3 years bearing an interest of 11.5%, 12% and 12% per annum respectively. In the cumulative scheme the Company also launched a six monthly fixed deposit scheme @ 11% per annum. The minimum investment amount for its fixed deposit scheme will be Rs. 10,000/- and in multiples of Rs. 1,000/- thereafter. The company as part of its corporate social responsibility has offered 0.50% additional interest per annum for its employees, company shareholders, senior citizens, physically challenged individuals, defence personnel, paramilitary forces and ex-servicemen-women. Mr. Amrut Gada, Chairman & Managing Director, Sejal Architectural Glass Limited said Sejal is the only Company till now in the Corporate Fixed Deposit Market to offer additional interest to the category belonging to Defence Personnel, Para-Military Force, Ex-Servicemen and the physically challenged. We expect a positive response on our new initiative and the money mobilised from the FD scheme will be used for meeting the working capital requirement needs of the Company