Public Deposits Meaning | Advantages and Disadvantages
Table of Contents
Public Deposits Meaning
Introduction of Public Deposits
Meaning of Public Deposit
Public deposit is an important source of financing the short-term requirements of the company. Companies receive fixed deposits from the public for a period ranging from 6 months to 36 months. Such deposits are called as Public Deposits.
Under this method, the general public is invited to deposit their savings with the company for varied periods. Interest is paid by companies on such deposits. The company issues a‘ Deposit Receipt’ to the depositor. The terms of deposit are mentioned in the ‘Deposit Receipt’. A deposit Receipt is an acknowledgment of debt/loan by the company. Deposits are either secured or unsecured loans offered to the company.
What is a deposit?
c) As per section 2 (31) of Companies Act, 2013, ‘deposit’ includes any receipt of money by way of deposit or loan or in any other form by a company but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.
d) The above expression has been further elaborated b Rule 2 (1)(c) of Companies (Acceptance of Deposits) Rules 2014. This Rule provides that ‘deposit’ means any receipt of money, in the form of a deposit or loan by a company.
e) However, ‘deposit’ does not include the following :
- Any amount received from the Central Government or a State Government.
- Any amount received as a loan from any banking company.
- Any amount received from a foreign government or international banks.
- Any amount received by a company from any other company.
- Any amount raised by issuing commercial paper.
- Any amount raised by issue of bonds.
- Any amount received in trust.
- An amount received by way of subscription to shares or debentures.
Advantages of Public Deposit
(i) The procedure of obtaining deposits is simple and does not contain restrictive conditions as are generally there in a loan agreement.
(ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.
(iii) Public deposits do not usually create any charge on the assets of the company. The assets can be used as security for raising loans from other sources.
(iv) As the depositors do not have voting rights, the control of the company is not diluted.
Disadvantages of Public Deposit
(i) New companies generally find it difficult to raise funds through public deposits.
(ii) It is an unreliable source of finance as the public may not respond when the company needs money.
(iii) Collection of public deposits may prove difficult, particularly when the size of deposits required is large.
