Private companies need to insure money raised via deposit schemes

NEW DELHI: Private companies raising money through deposittaking schemes will have to bear the expenses of deposit insurance from March 2015 under new norms that are aimed at protecting the interest of small investors. “We will be closely watching all such firms and errant companies will be penalised. We get complaints from around 15,000 aggrieved investors every year,” said a senior corporate affairs ministry official, requesting anonymity.

Under the new norms, the private companies will not be allowed to recover the amount of premium paid on the insurance of such deposits by deducting it from the principal amount or interest payable.

At present, all banks have to insure their deposits with the Deposit Insurance and Credit Guarantee Corporation (DIGC), which ensures that each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount.

“This will definitely safeguard the savings of small investors and there’s nothing wrong with companies bearing the cost of insurance premium as they have to give this assurance to investors that their money is safe. Since the market is very competitive, I don’t think it will impact the interest these companies offer,” said Shashwat Sharma, partner-financial services at KPMG India.

The deposit insurance contract will specifically provide that in case the company defaults in repayment of principal amount and interest thereon, the depositor will be entitled to the repayment of principal amount of deposits and the interest thereon by the insurer up to the aggregate monetary ceiling as specified in the contract.

The new Companies Act has already introduced more stringent guidelines for companies wanting to raise money. As per the rules, companies must have a net worth of more than Rs 100 crore or turnover of Rs 500 crore to float any such scheme. The maximum amount that can be raised has also been capped at 25% of the paid-up capital reserves.