Public Deposits

Meaning: Public deposits are deposits raised by an organisation directly from the public. The rate of interest offered is usually higher than on bank deposits, which attracts depositors. Anyone wishing to deposit money fills up a prescribed form, and the organisation issues a deposit receipt acknowledging the debt.

Key features:

• Public deposits can meet both medium- and short-term financial requirements.
• They benefit both sides: depositors earn a higher interest rate than banks offer, while the company's cost of these deposits is less than the cost of borrowing from banks.
• Companies generally invite public deposits for a period up to three years.
• Their acceptance is regulated by the Reserve Bank of India (RBI).

Merits

• Simple procedure — no restrictive conditions of the kind found in a loan agreement.
• Lower cost than borrowing from banks and financial institutions.
• Usually no charge on the company's assets, so those assets remain free as security for loans from other sources.
• Depositors have no voting rights, so the control of the company is not diluted.

Limitations …