Govt weighs easier norms for companies raising funds from public

Amidst a clamour by corporate houses for lowering interest rates and reducing borrowing costs, the centre is weighing the possibility of relaxing norms governing acceptance of deposits by companies from the public under the Companies Act, 2013.

A Companies Law Committee set up by the government 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 pegged at 20 per cent of the amount of deposits maturing during that financial year rather than clubbing amounts due for the successive year.

Currently, companies accepting deposits from 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, which adds up to 30 per cent for two years combined.

Accordingly, if a company has deposits amounting to Rs50 crore maturing in the current financial year and a similar amount in the next, then it has to deposit Rs15 croree (7.5 crore - 15 per cent of Rs50 crore - for the current financial year and Rs7.5 crore for the next year).

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

The committee submitted its report to union minister for finance and corporate affairs Arun Jaitley, earlier this month.

Under the proposed guidelines in the Companies Act, 2013, the company will need to deposit a relatively smaller amount of Rs10 crore - 20 per cent of Rs50 crore - in the deposit repayment reserve account in the current financial year, thereby easing liquidity pressure.

The committee felt that though the current provision safeguards 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, headed by Tapan Ray, secretary, ministry of corporate affairs, feels such a move would mitigate the difficulties of companies while providing reasonable safeguards for depositors.

The committee observed that the bar on accepting further deposits should apply only if a company has not made good earlier defaults.

However, if a company has cleared earlier defaults by repaying deposits and the interest due thereon, it should be allowed to accept further deposits after five years from the date it repaid the defaulting amounts, the committee said.

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

The catch here is that there is a possibility that the present non-productive loan portfolio of banks will then increasingly shift to the public, which has lesser recourse to getting back their monies from bankrupt companies.