Companies

Norms for cos accepting deposits from the public may be eased

K Ram Kumar Mumbai | Updated on January 20, 2018

Easing norms for accepting deposits: To mitigate the difficulties of companies while continuing with reasonable safeguards for depositors whose deposits are maturing.

Move aimed at lowering firms’ borrowing costs while safeguarding investors

In a bid to improve corporate liquidity, the Centre is weighing the possibility of relaxing norms governing acceptance of deposits by companies from the public under the Companies Act, 2013.

The Companies Law Committee has recommended that the amount of funds to be deposited and kept in a scheduled bank by a company in a financial year should be changed to not less than 20 per cent of the amount of deposits maturing during that financial year.

Currently, companies accepting deposits from their members or the public have to deposit not less than 15 per cent of the amount maturing during a financial year and a similar percentage for the next financial year in a scheduled bank.

This money has to be kept in a separate bank account called the deposit repayment reserve account.

For example, if a company has deposits amounting to ₹20 crore maturing in the current financial year and a similar amount in the next, then it has to deposit ₹6 crore (₹3 crore — 15 per cent of ₹20 crore — for the current financial year and ₹3 crore for the next) in the deposit repayment reserve account.

But once suitable changes are made in the Companies Act, 2013, then the company will need to deposit a relatively smaller amount of ₹4 crore — 20 per cent of ₹20 crore — in the deposit repayment reserve account in the current financial year, thereby easing liquidity pressure.

Lowering costs

The Committee, which submitted its report earlier this month to Union Minister for Finance and Corporate Affairs Arun Jaitley, felt that though the current provision was a safeguard for depositors, it increases the cost of borrowing for the company as well as locks up a high percentage of the borrowed sums.

The 10-member Committee, which was headed by Tapan Ray, Secretary, Ministry of Corporate Affairs, is of the view that such a move would mitigate the difficulties of companies while continuing with reasonable safeguards for depositors whose deposits are maturing.

The Committee observed that the prohibition on accepting further deposits should apply indefinitely only to a company that had not made good earlier defaults.

However, in case a company had cleared earlier defaults by repaying deposits and the interest due thereon, it recommended that the company should be allowed to accept further deposits after five years from the date it repaid the defaulting amounts.

The Committee was of the view that imposing a lifelong ban for a default anytime in the past would be harsh.

Published on February 21, 2016

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