RBI increases efforts to track ‘chit fund’ schemes

In an effort to control what has been dubbed the Indian 'chit fund' scam, the Reserve Bank of India has started scrutinising some 3,000 companies that the central bank thinks could be carrying out non-banking finance operations without requisite registration.

The central bank's move comes in the backdrop of the government's efforts to crack down on entities that raise money from small investors with promises of unrealistic returns.

According to a PTI report, the RBI has started looking into these companies, which are engaging in non-banking financial company (NBFC) activity without being registered.

The RBI has sought details of these companies financials, including balance sheets, for the last three years.

According to the report, the ministry of corporate affairs had earlier sent a list of thousands of companies engaged in non-banking financial activities to the RBI, following numerous discrepancies in the filings made by these entities.

Various ministries, government departments and regulators have been working to crack down on illegal money pooling schemes in the wake of recent revelations about fraudulent money-gathering activities or 'Ponzi schemes' in India.

The complexity of regulatory authorities doesn't help. While RBI regulates NBFCs, collective investment schemes are under the Securities & Exchange Board of India. Moreover, collective 'chit' funds are governed by state governments.

Governor of the RBI D Subbarao said last week that illegal money-pooling could only be checked by stronger surveillance and better enforcement of laws.

"The problem is not with regulated schemes; the problem is with unlawful schemes - and unlawful schemes are by definition not regulated. The Ponzi schemes cannot be regulated by anyone because they are illegal and illegal schemes are not regulated," he had said.