Mumbai, Aug 25 (IANS): With a series of scams involving chit funds surfacing in recent months, the Reserve Bank of India (RBI) and the finance ministry will define what are deposits, beyond banking and finance companies, a RBI official said.
Speaking on the margins of the meeting with state finance ministers here, Deputy Governor R. Gandhi said the central bank and the finance ministry are working on the definition of deposits, is mainly to cover financial entities other than banks and non-banking finance companies (NBFCs).
According to him, the definition of the deposits have to be framed in manner so that there is clarity as to who the regulator for such entities would be.
There is clarity on some aspects but on some, it is lacking.
The RBI's proposed move is part of series of measures taken to protect unwary public from losing their hard-earned money to unscrupulous finance companies.
The central bank last week came out with its draft charter on the rights of customers of banks and finance companies.
According to RBI, the five basic rights of a customer are: fair treatment, transparency, fair and honest dealings, product suitability, privacy and grievance redress and compensation.
Consumer activists have welcomed the RBI's move as the draft charter talks about the compensation for deficiency in service.
Parliament recently passed the Securities Laws (Amendment) Bill, 2014 to curb the menace of fraudulent investment plans or ponzi schemes to save investors from losing their money.
The bill also provides the market regulator Securities and Exchange Board of India (SEBI) to conduct searches and ask data from suspected entities.
Replying to the debate on the bill, Finance Minister Arun Jaitley said the bill also provides for speedy trial of cases by setting up various courts.
He said the new bill also provided for confiscating the profits earned out of illegal activities, adding these legislative changes were required since the stock markets has transformed over the past decade or so.
The government brought the bill in the wake of thousands of people losing money due to these fraudulent schemes, more recently in West Bengal in what is known as the Saradha chit fund scam.
The Indian finance sector has several entities some are regulated and many are not by the RBI.
There are also unincorporated bodies who undertake financial activities and remain unregulated. There are incorporated companies and unincorporated entities illegally accepting deposits and there are entities that camouflage deposits in some other names.
The RBI feels that the law as its stands today is inadequate to deal with these issues. The central bank is also restructuring its organisational setup at the regional level to gather market intelligence on unincorporated entities.
Gandhi said the RBI is also looking at the feedback on its recent stipulation to NBFCs that they could accept only a particular kind of shares as collateral for granting loans over Rs.500,000.