However, the case of company deposits is another. The fortunes of manufacturing company move in tandem with the growth cycles. Simultaneously, a company may default on its deposits because of mismanagement, cash flow problems, failure of a project, unforeseen contingencies. Additionally, by definition, company deposits are unsecured loans and hence there could be some problem in convincing insurance companies to provide insurance cover to them. However, the need for some mechanism to warn the depositors of a potential default and some kind of safety measure to secure their deposits may not be misplaced.
Investor education has a significant role to play here.
So also the law. These include companies being required to intimate the Company Law Board within 60 days of a default by it and permitting only adequately capitalised public companies to raise deposits. The first measure has shifted the responsibility of informing the CLB from depositors who are both ignorant and unorganised to the company. The latter provisions ensures that in case of default, the company has the ability to meet at least a part of the claims of the secured and unsecured lenders. However, whatever mechanism is put in place it would have to be such that the claims of depositors are met before the company goes sick.