Question

Briefly explain any three demerits of public deposits.

Answer 1

The demerits of Public deposits are :
Uncertainty: Public deposits is an uncertain and unreliable source of finance. During the depression period, the depositors may not respond. Also, deposits may be withdrawn whenever the financial position of the company is not stable.

Suitable for Short-term Finance: A company cannot depend upon public deposits for a long-term financing requirement as the maturity’ period of public deposits is between six months to three years.

Hindrance to Growth of Capital Market: Public deposits hamper the growth of a healthy capital market in the country. The widespread use of public deposits creates a shortage of industrial securities.