Public DepositsThe deposits that are raised by enterprises directly from the public are called as public deposits. The Rates of interest obtained on public deposits are comparatively higher than that obtained from the bank deposits. A person can fill up a prescribed form of the organization and deposit the money on to it. The organization would in return issue an acknowledgement in the form of a deposit receipt. It is only Public deposits take care of both medium and short-term financial requirements of a business. These deposits prove to be beneficial to both the depositor and the organisation. Even as the depositors gain higher interest rate than that offered by the banks, the cost of deposits to the company is comparatively lesser than the cost of borrowings from banks. Companies by and large invite public deposits for a prescribed period of three years. The acceptance of public deposits is regulated by the Reserve Bank of India.
The merits of public deposits are:
- The procedure for obtaining deposits are simple and does not involve restrictions unlinke loan agreement;
- The cost of public deposits is usually lower than the cost of borrowings from banks and financial institutions;
- Public deposits does not generate any charge on the assets of the company. The assets as always, can be used as security for applying loans from other sources;
- The depositors are deprived of voting rights and their control over the company does not get diluted.
The most important limitation of public deposits is listed below:
- New companies normally find difficulty in raising funds through public deposits;
- It is an undependable source of finance as the public is unlikely to respond when the company requires money;
- The public deposits may prove thorny, particularly when the size of deposits the company requires is large.