A deposit-taking scheme is defined as unregulated if it is not registered with the regulators. Currently, nine regulators oversee and regulate various deposit-taking schemes. For example, RBI regulates deposits accepted by non-banking financial companies, SEBI regulates mutual funds, state and union territory governments regulate chit funds, among others. All deposit-taking schemes are required to be registered with the relevant regulator.
Popular deposit schemes such as chit funds and gold schemes usually do not come under the purview of government regulators. These schemes exploit existing regulatory gaps and lack of strict administrative measures. The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are often spread over many States. The Saradha chit fund scam in West Bengal is just one example of such a heinous financial crime against depositors. Thus, a comprehensive central legislation is needed to deal with the menace of illicit deposit taking schemes.
A Ponzi scheme is “an investment fraud that involves payment of purported returns to existing investors from funds contributed by new investors
The Banning of Unregulated Deposit Schemes Bill Government of India has brought Banning of Unregulated Deposit Schemes Ordinance 2019 with following objective For banning of unregulated deposits schemes.To protect the interest of depositors
Although the intent of the government behind bringing the ordinance is applaudable, experts believe this ordinance will have certain challenges.Low-income Indian households have traditionally been depended on these small saving schemes. The new rule would derecognise genuine deposit schemes that offer useful financial services to customers in the unorganised sector . This would affect a cash-strapped businessman borrowing from an acquaintance to meet a personal obligation. This could cause difficulties to small traders carrying out business as a proprietor, partnership firm or LLP. Students and the needy taking loans from charitable trusts would run into hurdles.Policymakers will have to make sure that the bureaucrats responsible for the on-ground implementation of the ordinance are keen on protecting the savings of low-income households.There must also be checks against persons in power misusing the new rules to derecognise genuine deposit schemes that offer useful financial services to customers in the unorganised sector.
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