NEW DELHI: The government is considering banning non-financial companies from running deposit schemes as part of a move to strengthen the financial sector and protect millions of low-income investors who often get duped into buying unlicensed products promising unrealistic returns.
"It is being discussed if outright banning of such companies can be easily implemented," a senior official, who did not wish to be named, said, referring to regulations being deliberated upon by an inter-ministerial group.
Ponzi schemes have existed in India for years, largely because of the gaps in its financial sector regulations. In April, the problem surfaced again when an unlicensed financial scheme run by Bengal-based Saradha Group went bust, sinking the money of millions of investors, most of who were outside the banking system.
Curbing sale of such financial products, which target lower- and middle-income groups and invest mainly in real estate and plantation, is difficult as the companies that run them fall outside the regulatory radar. "At present, they do not fall under the supervision of the RBI (central bank) or Sebi (market regulator), making it difficult to curb their activities," the official said.
The inter-ministerial panel is also considering creation of a central coordination agency toshare market intelligence between the central and state governments for better regulation ofnon-banking finance companies (NBFCs), multi-level marketing entities and companies running collective investment schemes.
"Such a co-ordinating agency will provide the platform where the regulators, central government and state governments can share and analyse data," the official said.
The issue of ponzi schemes has been highlighted by finance minister P Chidambaram. Earlier, a parliamentary panel, headed by former finance minister Yashwant Sinha, had suggested a blanket ban on such schemes and creation of a regulator to oversee their functioning or scrapping them altogether.
The inter-ministerial group, set up after the Saradha Group scam, has representation from the revenue and economic affairs department in finance ministry, ministry of corporate affairs, banking sector regulator RBI and Sebi.
To strengthen the existing mechanism, the RBI will also look at resetting the criteria for registration of NBFCs. "The RBI will also hold internal discussions ON WHETHER the principal business criteria for NBFCs should be the main part of the Act and not in subordinate legislations, which can be changed at a later stage," the official said.
The inter-ministerial group has also roped in the department of information technology to help regulate online deposit schemes.
"The overall strategy is to provide a quick and efficient redressal mechanism for investors who are duped by unincorporated bodies (UIBs), or unauthorised entities collecting deposits," the official said. The central government will also push all states to enact laws to protect the interest of depositors in financial establishments.
According to the official, the inter-ministerial group will not take up the issue of multi-level marketing companies, and companies such as Amway.
"The department of consumer affairs is already looking into the issue."
Source : http://economictimes.indiatimes.com
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