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Public Deposits

The 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.
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The Lessors

  1. Specialised Leasing Companies: There are approximately 400 big companies with an organisational focus on leasing, and therefore, called as leasing companies.
  2. Banks and Bank-subsidiaries: In February 1994, the RBI allowed banks to directly enter leasing. Till then, only bank subsidiaries were allowed to engage in leasing operations, which was regarded by the RBI as a non-banking activity.
  3. Specialised Financial Institutions: A number of financial institutions, at the Central as well as the State level in India, use the lease instrument along with traditional financing instruments. Significantly, the ICICI is one of the pioneers in Indian leasing.
  4. Manufacturer-Lessors: As competition forces the manufacturer to add value to his sales, he finds the best way to sell the product on lease. Vendor leasing is gaining increasing importance. Presently, vendors of automobiles, consumer durables, etc., have alliances or joint ventures with leasing companies to offer lease finance against their products.

The Lessees

  1. Public Sector Undertakings: This market has witnessed a good rate of growth in the past. There is an increasing number of both centrally as well as State owned entities which have resorted to lease financing.
  2. Mid-market Companies: The mid-market companies (i.e. companies with reasonably good creditworthiness but with lower public profile) have resorted to lease financing basically as an alternative to bank/institutional financing.
  3. Consumers: Recent bad experience with corporate financing has focused attention towards retail funding of consumer durables. For instance, car leasing is a big market in India today.
  4. Government Depts. and Authorities: One of the latest entrants in leasing markets is the government itself. Recently the Department of Telecommunications of the central government took the lead by floating tenders for lease finance worth about Rs. 1000 crores.

The merits of public deposits are:
  1. The procedure for obtaining deposits are simple and does not involve restrictions unlinke loan agreement;
  2. The cost of public deposits is usually lower than the cost of borrowings from banks and financial institutions;
  3. 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;
  4. 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:
  1. New companies normally find difficulty in raising funds through public deposits;
  2. It is an undependable source of finance as the public is unlikely to respond when the company requires money;
  3. The public deposits may prove thorny, particularly when the size of deposits the company requires is large.

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