Ban on deposit collection via chit funds

With dubious chit funds taking investors for a ride across the country,the Reserve Bank of India RBI has slapped curbs on their fund-raising activities. The central bank has banned miscellaneous non-banking companies MNBCs which normally operate chit funds from accepting deposits from public except from the shareholders. Any deposit accepted and held by the MNBCs other than from its shareholders as on date shall be repaid on maturity and shall not be eligible for renewal, the RBI said.

Chit funds are very active in Uttar Pradesh,Orissa,Tamil Nadu,Kerala and Karnataka. Many of them have collapsed due to mismanagement while some unauthorised funds have disappeared after mobilising funds from the public.

The RBI had earlier said banks should not accept deposits at the instance of private financiers or unincorporated bodies under any arrangement,which provides for either the issue of deposit receipts favouring the clients of private financiers or giving of an authority by power of attorney,nomination otherwise for such clients receiving such deposits at maturity.