Corporate Fixed Deposits
Understanding Corporate Fixed Deposits
The Corporate Fixed Deposits, as the name suggests, are like any other Fixed Deposits issued by the banks. They also have some characteristics of fixed deposits with some restrictions.
The Corporate Fixed Deposits are issued by Public and Private Limited companies. It is governed by Section 73 of the Companies Act. It is also called Company Deposits. Bank Deposits are governed by the Banking Regulation Act.
Why Companies Take Deposits
Companies require funds for business activities. To reduce interest costs compared to bank loans, they invite deposits from the public. The interest on these deposits is generally 3-5% less than bank loans, helping reduce the cost of production.
Who Can Issue Them?
Financial companies and NBFCs are allowed to take public deposits. For Public and Private Limited companies, it is subject to Section 73 to 76 of the Companies Act, 2013, requiring a specific net worth or turnover.
Legal Requirements
A Public Company must have a Net worth of Rs 100 Crs or Turnover of not less than Rs 500 Crs. Shareholders' consent via Special Resolution must be filed with the Registrar of Companies before accepting public deposits.
Conditions Precedent to Obtention of Deposits
The companies have to necessarily fulfil the following conditions before accepting deposits from the public:
Deposits shall not be repayable on demand.
The period of deposits shall not be less than 6 months. The company may accept the deposits for their short-term requirement for not less than 3 months. But such deposits should not exceed more than 10% of their paid-up share capital and free reserves.
Company has to issue an advertisement in a newspaper in form-DPR-1 for inviting deposits from the public.
Company cannot accept the deposits from public exceeding 25% of its share capital and free reserves. In the case of Government companies limit is 35%.
Company shall obtain the Credit Rating from accredited agencies at the time of accepting the deposits and every year thereafter. The same shall be informed to the Registrar of companies in form-DPT-3.
Company shall maintain a Repayment Reserve Account and keep a minimum of 20% of the number of deposits maturing during the following financial year.
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