RBI asks northeast to crack whip on chit fundsMay 26th, 2011 - 1:35 pm ICT by IANS
Agartala, May 26 (IANS) Worried about rising incidents of non-banking finance companies (NBFCs) hoodwinking the public, India’s central bank has asked north eastern states to constitute a robust economic offence wing and enforce legislation like the Chit Fund Act.
A large number of NBFCs have cropped up in the northeast, luring customers with promises of high returns on deposits, although they do not have a licence from any of the regulatory authorities to accept deposits from the public.
“Setting up of economic offences wing, enactment of Protection of Interest of Depositors (in Financial Establishments) Act and framing rules under the Chit Fund Act are the urgent matters which should be looked into by the state governments to deal with such illegal entities,” RBI regional director Surekha Marandi told IANS in an interview here.
She said that none of the 116 NBFCs currently functioning in the north-eastern states is a deposit-taking company.
States frame rules specific to their needs for some federal acts, which govern the activities of businesses in a particular sector.
Tripura doesn’t have an economic offences wing and has not framed state rules with regard to the Chit Funds Act.
Marandi said that recently a network marketing company by the name of “Jainex International Trade” has duped thousands of gullible investors in Manipur to the extent of nearly Rs 40 crore and their network disappeared all of a sudden.
Several other companies are also operating in the same line in Manipur and other northeastern states.
“Framing state rules under the Chit Fund Act, Prize Chits and Money Circulation Schemes (Banking) Act 1978 and other related central acts are the only answers to check the menace posed by the NBFC and UIBs,” the RBI official said.
“The offences under these central acts are cognisable offences,” she said.
The NBFCs not recognised by financial sector regulators like the RBI, the Insurance Regulatory Development Authority (IRDA) or the Securities and Exchange Board of India (SEBI), cannot accept deposits from the public or do any monetary business.
But the RBI or other regulators cannot take action on companies that are not registered with them.
Hence the onus lies on state governments to monitor the activities of such firms as have mushroomed in the northeastern region in recent years, mobilising huge deposits from people by promising abnormally high rates of interest, at 25 to 30 percent.
After collecting the money, they vanish overnight.
“State governments should make efforts to arrest the people involved in the dubious activities of such companies,” the RBI regional chief said.
The Tripura government, during the recent budget session of the state assembly, moved a new bill amending the Tripura Protection of Interest of Depositors (in financial establishments) Act, 2000, for enhancing the level of protection of the depositors in monetary firms, including NBFCs and UIBs, by providing more teeth to the existing legislation.
The new bill proposes to impose a fine of Rs.10,000 for every flawed provision and act by the NBFCs and UIBs and in addition Rs.1,000 per day for continuation from the date of default.
Marandi said that the RBI, on its part, had decided to open its sub-offices in six northeastern states - Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura and Meghalaya - in a phased manner for better monitoring of the functioning of the nationalised, private banks and other financial institutions.
The first such RBI sub-office in the series was inaugurated in Agartala by central bank governor Duvvuri Subbarao last week. According to an RBI official, the next sub-office would be set up in the Meghalaya capital Shillong soon.
Currently, RBI has a regional office in Assam’s main city of Guwahati.
“With the setting up of these sub-offices, RBI’s mission to improve the banking services to the northeastern region and to ensure banking access to all people would be fulfilled to a large extent,” Marandi said.
(Sujit Chakraborty can be contacted at email@example.com)
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