The Hindu Business Line : Corporates favour easier norms on public deposits

DESPITE attempts to rationalise norms for acceptance of public deposits by companies, it may take some time before companies as well as depositors regain confidence in it.

A section of corporate sector would like the Ministry of Company Affairs to revisit the norms to create a more favourable environment.

"Public deposits are a popular and efficient method of financing medium-term financial needs of companies. It is, therefore, necessary to create a conducive environment for such deposits to be freely invited and accepted, while simultaneously ensuring that an optimal risk reducing strategy is evolved," a Federation of Indian Chambers of Commerce and Industry (FICCI) official said.

The focus should be to make it more reassuring for the depositors to invest in company deposits while avoiding acute stringency that will only drive away companies from this source of financing altogether, he emphasised.

The concept paper on re-codifying the company law, while retaining measures to protect small public depositors, has tried to reduce the rigours of the provision by making only the offences relating to non-repayment of deposits as cognisable.

It has also proposed that advertisement for deposits should include a statement showing financial position of the company, total number of small depositors and amounts due to them, along with waiver of any interest accrued on deposits of small depositors. Further, the concept paper also gives the companies an opportunity to explain in cases of default.

At times, companies make losses and may even become unviable and unable to pay public deposits due to a number of factors, which might be even beyond their control - exposure to competition, lowering of tariffs, uneconomic size, and change in technology.

"The provision which make the defaults as cognisable offence and thereby permitting arrests is, on the face of it, completely disproportionate to the defaults - only civil wrong committed," a senior corporate executive told Business Line.

In concurrence with the view to protect depositors' interest, Ms Preeti Malhotra, Director-cum-Secretary, Spicenet Ltd, and Council Member, Institute of Company Secretaries of India (ICSI), said a proper legal framework should be in place to take care of the risk elements involved in repayment of deposits and interests thereon.