Lack of insurance cover could hit company fixed deposits

The absence of insurance coverage for company fixed deposits is likely to impact the plan of companies to raise deposits from the public. This is because the Companies Act 2013, which became effective from April 1 2014, makes it mandatory for companies to buy insurance cover for fixed deposits in the absence of which they will have to pay penalty.

Harish K Vaid, senior president (corporate affairs) and company secretary, Jaiprakash Associates, says, "As of now not a single insurance company is offering the product. It will not be possible to launch company deposits in the near future."

General insurers say they are looking to offer cover that will insure corporate deposits. "We are in talks with the Insurance Regulatory and Development Authority to allow us to offer insurance cover for company deposits," said KK Rao, general manager, Oriental Insurance Company.

Currently, Irda has banned credit insurance by general insurers except Export Credit Guarantee Corporation. The ban came after huge defaults were reported on credit insurance policies.

At present, only the Deposit Insurance and Credit Guarantee Corporation (DICGC) offers insurance for bank deposits. However, they are not allowed to offer insurance for corporate deposits under the DICGC Act. Under the scheme a sum of up to Rs 1 lakh, including the principal and interest amount, is paid to the depositor in the event of a bank being unable to fulfill its commitment due to liquidation, cancellation of licence or merger.