Insurance cover in pipeline for Corporate Depositors - Views on News from Equitymaster

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  • Jun 16, 2000 - Insurance cover in pipeline for Corporate Depositors

Insurance cover in pipeline for Corporate Depositors

Jun 16, 2000

Paranoid about that huge sum of money parked in the deposits floated by a blue chip company. Worried about what happens if it goes bust? Rest assured for the north block mandarins are putting in place a blue print to bring corporate deposit holders under safety net by way of an insurance cover. The move is expected to encourage investors to look at corporate deposits as a possible secure investment avenue. Currently the small investors are still wary of putting their money in deposits floated by a corporate, as most of them are of the view that they may never get it back, thanks to the CRB scam of 1998. So far there is no agency which provides protection to company deposit holders. Though there are consumer grievance forums but these depositors do not find them useful as they do not have any legal power to take the defaulting companies to task.

Once the cover is in place, at least the claims of small depositors would be taken care of when a company goes bust. In the case of a bank, deposits up to Rs 100,000 are provided an insurance cover, which in other words mean that most of the small depositors are covered in case there is default. As most scheduled commercial banks are semi sovereign in nature, the possibility of banks going bust is out of question and even if it happens, the government comes forward to rescue the situation.

For companies, the scenario is totally different. A company may default on its deposits because of mismanagement, cash flow problems, unforeseen contingencies or a failure of a project.

The need for a security blanket for corporate depositors is definitely required. The center has already provided for several deposit protection measures in the second companies amendment bill which is gathering dust in the parliament. Now it only remains to be seen when the bill becomes a Law.

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