Saradha due to formal financial system's failure: RBI- Business Standard 2nd May 2013
KC Chakrabarty was referring to the recent scam which has defrauded people for several thousand crore rupees
The Reserve Bank of India (RBI) has said chit fund companies which defraud people show the financial system’s failure to bring unbanked population into the formal system.
“The fact that people have to rely on such entities (chit funds) for their saving needs indicates a failure on the part of the formal financial system to reach out to such groups and earn their trust and confidence through a transparent and responsive customer service regime” said K C Chakrabarty, deputy governor, RBI, at an event in Pune yesterday. He was referring to the recent Saradha scam in West Bengal, where a large number have lost several thousand crore rupees.
“The financial sector architecture we aspire for should be one that is most conducive to meeting the objectives of financial inclusion and financial literacy, besides meeting the goals of customer service,” he said.
The Saradha Group had been raising deposits from the public with a promise to double the money invested within a short period. Even as its chairman, Sudipta Sen, was caught, panic among depositors and agents continues. Some have committed suicide and angry masses have ransacked several offices of Saradha across the state.
“The need of the hour is to ensure that our unbanked population gains access to formal sources of finance, their reliance on informal channels and on the shadow banking system subsides and, in the process, consumer exploitation is curbed,” Chakrabarty said.
Yesterday, the government had also said there was a need to regulate chit fund companies. Arvind Mayaram, secretary, department of economic affairs, said government was discussing the matter.
“The fact that people have to rely on such entities (chit funds) for their saving needs indicates a failure on the part of the formal financial system to reach out to such groups and earn their trust and confidence through a transparent and responsive customer service regime” said K C Chakrabarty, deputy governor, RBI, at an event in Pune yesterday. He was referring to the recent Saradha scam in West Bengal, where a large number have lost several thousand crore rupees.
“The financial sector architecture we aspire for should be one that is most conducive to meeting the objectives of financial inclusion and financial literacy, besides meeting the goals of customer service,” he said.
The Saradha Group had been raising deposits from the public with a promise to double the money invested within a short period. Even as its chairman, Sudipta Sen, was caught, panic among depositors and agents continues. Some have committed suicide and angry masses have ransacked several offices of Saradha across the state.
“The need of the hour is to ensure that our unbanked population gains access to formal sources of finance, their reliance on informal channels and on the shadow banking system subsides and, in the process, consumer exploitation is curbed,” Chakrabarty said.
Yesterday, the government had also said there was a need to regulate chit fund companies. Arvind Mayaram, secretary, department of economic affairs, said government was discussing the matter.
My Opinion
It is absolutely wrong and self deceptive to say and believe that chit funds are growing only because there is absence of other financial systems like banks. Bitter truth is that Chit funds are in operation in all metros, all big towns and cities and in all villages and panchayats. There are hundreds of chit fund companies which are freely working in Kolkata and Mumbai where branches of a nationalized bank are available in plenty and in almost all roads, all streets and all mohallas.
It is only due to greed for quick growth of money that a person keeps his or her hard earned money in Chit funds.
Secondly there is no control of the government or RBI or Ministry of Finance or SEBI to monitor their activities and to ensure that money of investors is safe in the hands of promoters of chit funds.
Thirdly there are lacs of such chit fund or non banking companies working as chit funds but not having any permission from government. Chit funds keep the name of their company as if they are dealing in real estate, or any consumer product or in jewel to mislead the investors. None of the departments are aware of what is happening in their area and what precaution they have to take to safeguard public money.
Fourth, majority of chit funds are getting patronage by leading politicians or reputed film actors or reputed rich business houses.
It is not wrong to say that public money in unsafe not only chit funds but also in state run banks or private banks. Banks are unsafe due to political exploitation and rampant corruption at all level of banks and the most astonishing is that most of corrupt bankers have blessings of some key politician in the country.
Flattery or bribe based promotion and posting, bribe based recruitment, bribe based lending and bribe based mobilization of deposits etc have all killed the uprooted all safety valves built in the past.
CVC and CBI or Anti corruption bureau are not getting time and do not have will to stop unhealthy growth of chit fund companies or increasing trend in bad debts and frauds in banks. Banks are unsafe due to rising bad assets and rising number of frauds taking place in banks.
It is only the common men who are always victim of lack of control and monitoring .All top ranked leaders in the country are cheating, not only banks but all departments.
Indian judiciary is unable to dispose off cases even in one or two decades which are filed by aggrieved person. Majority of Media amen are also puppets in the hands of rich people and powerful leaders.
Then who will protect the interest of common men.
Person like Arvind kejriwal or Anna Hazare who come forward voluntarily to expose the evil works of government servants and politicians are taken to task by person sitting at powerful posts including police, IT,ED,CVC,CBI and all.
This is why even after lapse of more than 65 years after freedom Indian government has failed to protect the interest of common men. Government is unable to eradicate the evils of dowry, rape, corruption and terrorism. Government has failed to keep price rise in control , failed to provide even essentials like water, nutritious food, minimum health care ,electricity ,road and minimum sanitary services to common men.
Only GOD can help India and Indians.
Saradha fraud: Blame the RBI for the repressed formal financial sector-Economic Times
If chit funds could sue anyone for libel, they would get busy now. Chits are being clubbed with pyramid, money multiplier and other such schemes, by just about anyone who lets outrage run ahead of his knowledge.
Of course, swindlers like the SaradhaGroup's Sudipta Sen should be brought to book and their political backers exposed. We should deplore people's greed and ignorance that make them entrust their hard-earned savings to ludicrously lucrative schemes. But while condemning knavery and denouncing greed, let us also pin culpability for the mess in the financial sector on the real culprit: the Reserve Bank of India ( RBI).
Isn't it completely batty to accuse the principal financial regulator for what happens in the unregulated sector? Should the sun take the blame for the dark of the night?
LIKE A TOURNIQUET
The relationship between the regulated and the unregulated parts of finance is not that between night and day, where the one is the obverse of the other. The RBI's regulation is more like a tourniquet tied too long: it staunches the bleeding, all right, but it also cuts off blood supply to another part of the body, killing tissue and nerve.
Saradha and similar outfits exist because the vast majority of Indians do not have access to formal finance. The present government has made financial inclusion a major part of its agenda, stepping up financial connectivity to 2,11,224 villages, creating over 1.5 lakh banking correspondents and over three crore kisan credit cards, and bringing up the number of bank accounts to 17 crore.
But the bulk of these accounts are inactive, banks remain remote and intimidating, beyond access for most would-be depositors and borrowers. People have to give up work for a day, trudge a long distance to the village that has some banking outlet or the other - over two-thirds of all villages do not have a banking presence - and meet formalities that normally they would not be able to. So, they take recourse to informal means of saving and borrowing.
Of course, swindlers like the SaradhaGroup's Sudipta Sen should be brought to book and their political backers exposed. We should deplore people's greed and ignorance that make them entrust their hard-earned savings to ludicrously lucrative schemes. But while condemning knavery and denouncing greed, let us also pin culpability for the mess in the financial sector on the real culprit: the Reserve Bank of India ( RBI).
Isn't it completely batty to accuse the principal financial regulator for what happens in the unregulated sector? Should the sun take the blame for the dark of the night?
LIKE A TOURNIQUET
The relationship between the regulated and the unregulated parts of finance is not that between night and day, where the one is the obverse of the other. The RBI's regulation is more like a tourniquet tied too long: it staunches the bleeding, all right, but it also cuts off blood supply to another part of the body, killing tissue and nerve.
Saradha and similar outfits exist because the vast majority of Indians do not have access to formal finance. The present government has made financial inclusion a major part of its agenda, stepping up financial connectivity to 2,11,224 villages, creating over 1.5 lakh banking correspondents and over three crore kisan credit cards, and bringing up the number of bank accounts to 17 crore.
But the bulk of these accounts are inactive, banks remain remote and intimidating, beyond access for most would-be depositors and borrowers. People have to give up work for a day, trudge a long distance to the village that has some banking outlet or the other - over two-thirds of all villages do not have a banking presence - and meet formalities that normally they would not be able to. So, they take recourse to informal means of saving and borrowing.
CHIT FUNDS ARE JUST FINE
The chit fund, or the committee, is one such informal means. A number of savers form a closed group to pool a stipulated amount over a finite number of months. Any member of the group can seek to borrow this pooled saving. She has to compete with other would-be borrowers in the group.
Whoever has the most urgent need would offer to pay the highest rate of interest, implicit in the discount she is willing to bear to the nominal size of the corpus available for lending. The discount is shared among other members of the group.
The chit fund, or the committee, is one such informal means. A number of savers form a closed group to pool a stipulated amount over a finite number of months. Any member of the group can seek to borrow this pooled saving. She has to compete with other would-be borrowers in the group.
Whoever has the most urgent need would offer to pay the highest rate of interest, implicit in the discount she is willing to bear to the nominal size of the corpus available for lending. The discount is shared among other members of the group.
The man or woman who runs the chit or committee gets a handsome cut. If he does not run away with the money at his disposal, the chit fund is perfectly viable. In Kerala, the government itself runs chits through a state-owned enterprise.
Those who do not have access to even a committee/chit can borrow from a moneylender, pawnbroker, gold mortgage outfit or a parabanking entity. Each operates with a cost of capital only loosely related to the cost of capital of the others in the same locality, leave alone cost of capital in other towns and states.
SHED TECHNOPHOBIA
Bank lending in India is only 50% of GDPand, of this, nearly a quarter is appropriated by the government. In any decent economy, bank lending is well above 100% of GDP (200% for OECD and 340% for Japan). Since India has a long tradition of lending and borrowing money, credit requirement cannot be lower than that for a normal economy.
Which means informal lending is at least as large as formal credit, although finance professionals estimate the informal credit market to be only half the size of the formal one.
Informal credit is the lifeblood of not just poor villagers but also small and medium enterprises and the real estate sector, which the RBI urges banks to handle only wearing surgical gloves coated with disinfectant.
The net result is that large swathes of the economy are conditioned to accept segmented credit markets, exorbitant rates of interest, unregulated operations and reliance on trust rather than enforceable contracts. Is it any wonder people save with Saradha or Sahara?
Blame not just greed and financial illiteracy, blame also India's stunted formal finance, and that keeps out the unwashed masses. How does the RBI become Accused No. 1?
By being so stingy on bank licences. By being obtuse on the use of technology, by still dreaming that physical branches lay the path to financial inclusion, by refusing to recognise the ecosystem that mobile phones represent is ideal for mass electronic banking. That the prepaid SIM is a portable electronic vault that can be remotely credited and debited is less important than the network of authorised vendors of phone companies that can easily be moulded into a network of those authorised to sanction loans and collect repayment.
The Aadhaar system offers a sound route to universal banking coverage. Provided the RBI finds the courage to innovate policy based on advances in technology. License joint ventures between banks and mobile phone companies, choke Saradhas
Those who do not have access to even a committee/chit can borrow from a moneylender, pawnbroker, gold mortgage outfit or a parabanking entity. Each operates with a cost of capital only loosely related to the cost of capital of the others in the same locality, leave alone cost of capital in other towns and states.
SHED TECHNOPHOBIA
Bank lending in India is only 50% of GDPand, of this, nearly a quarter is appropriated by the government. In any decent economy, bank lending is well above 100% of GDP (200% for OECD and 340% for Japan). Since India has a long tradition of lending and borrowing money, credit requirement cannot be lower than that for a normal economy.
Which means informal lending is at least as large as formal credit, although finance professionals estimate the informal credit market to be only half the size of the formal one.
Informal credit is the lifeblood of not just poor villagers but also small and medium enterprises and the real estate sector, which the RBI urges banks to handle only wearing surgical gloves coated with disinfectant.
The net result is that large swathes of the economy are conditioned to accept segmented credit markets, exorbitant rates of interest, unregulated operations and reliance on trust rather than enforceable contracts. Is it any wonder people save with Saradha or Sahara?
Blame not just greed and financial illiteracy, blame also India's stunted formal finance, and that keeps out the unwashed masses. How does the RBI become Accused No. 1?
By being so stingy on bank licences. By being obtuse on the use of technology, by still dreaming that physical branches lay the path to financial inclusion, by refusing to recognise the ecosystem that mobile phones represent is ideal for mass electronic banking. That the prepaid SIM is a portable electronic vault that can be remotely credited and debited is less important than the network of authorised vendors of phone companies that can easily be moulded into a network of those authorised to sanction loans and collect repayment.
The Aadhaar system offers a sound route to universal banking coverage. Provided the RBI finds the courage to innovate policy based on advances in technology. License joint ventures between banks and mobile phone companies, choke Saradhas
Chit fund scam: RBI, bank alerts in December ignored by WB govt--Business Standard
The message was conveyed to the representative of the govt both verbally, was communicated formally
The West Bengal government seems to have ignored the alarm bells sounded by the central bank and the lenders of the state on the mushrooming chit funds like the Saradha group.
In the state level bankers’ committee meetings as early as in December last year, bankers had raised the issue on the chit funds that have flourished in the state. The message was conveyed to the representative of the government both verbally and was also communicated formally.
According to bankers there could be more than 80 such entities in the state which are collecting deposits from the public. Recently Kolkata-based chit fund, Sharadha group failed to repay the depositors following a run on it. The group’s chairman and managing director is also on the run after escaping dramatically. The group has been accused of cheating investor’s money and has turned out to be the biggest crisis of the Mamata Banerjee’s government.
“We had informed the Reserve Bank of India (RBI) that we were not comfortable with the operations of the chit funds which offered above 40 per cent returns to the public, mainly in the rural areas. We have asked the state government to protect depositors’ interest,” said a banker who attended the SLBC meeting in December.
Bankers explained that apart from the greed of getting higher return on investments, the depositors of such chit funds also were attracted to such informal means of investment as they find the avenue more convenient as compared to bank or mutual funds because of know your customer norms and other formalities which banks require.
In fact RBI governor D Subbarao, had also expressed discomfort over such entities. In a media conference in December, he had said responsibility of regulation cht funds rest with the state government.
“The chit funds are operating under the banner of multi-level marketing companies. The responsibility for prosecuting these firms for any violation of law is with the state government. The Reserve Bank of India does not regulate these entities,” Subbarao had said.
“We have warned all the state governments about entities indulging in multi-level marketing activities. We have written to state governments, requested them to stay vigilant and take appropriate actions against these firms,” he said.
Subbarao also said that RBI is running training sessions for police department at the district level to help them check proliferation of these multi-level marketing companies. “We do not have the authority to direct the police department and conducting training sessions only. The primary responsibility for controlling these entities, preventing and prosecuting culprits is with the state government,” Subbarao emphasised.
Though the state’s chief minister Mamata Banerjee, however, has earlier tried to passed the buck to the central government saying anti money laundering is not a state subject but later formed a Special Investigation Team and a high-level inquiry into chit fund companies after the collapse of the Saradha Group. The collapse of Saradha group has revised the memory of the collapse of Sanchayita Investment of early eighties which collected Rs 120 crore from the public before its offices were raised and then shut down. Only a handful of investors got a small fraction of their money back.
RBI had argued on the need for greater awareness among police, district administrators and consumers.
In the state level bankers’ committee meetings as early as in December last year, bankers had raised the issue on the chit funds that have flourished in the state. The message was conveyed to the representative of the government both verbally and was also communicated formally.
According to bankers there could be more than 80 such entities in the state which are collecting deposits from the public. Recently Kolkata-based chit fund, Sharadha group failed to repay the depositors following a run on it. The group’s chairman and managing director is also on the run after escaping dramatically. The group has been accused of cheating investor’s money and has turned out to be the biggest crisis of the Mamata Banerjee’s government.
“We had informed the Reserve Bank of India (RBI) that we were not comfortable with the operations of the chit funds which offered above 40 per cent returns to the public, mainly in the rural areas. We have asked the state government to protect depositors’ interest,” said a banker who attended the SLBC meeting in December.
Bankers explained that apart from the greed of getting higher return on investments, the depositors of such chit funds also were attracted to such informal means of investment as they find the avenue more convenient as compared to bank or mutual funds because of know your customer norms and other formalities which banks require.
In fact RBI governor D Subbarao, had also expressed discomfort over such entities. In a media conference in December, he had said responsibility of regulation cht funds rest with the state government.
“The chit funds are operating under the banner of multi-level marketing companies. The responsibility for prosecuting these firms for any violation of law is with the state government. The Reserve Bank of India does not regulate these entities,” Subbarao had said.
“We have warned all the state governments about entities indulging in multi-level marketing activities. We have written to state governments, requested them to stay vigilant and take appropriate actions against these firms,” he said.
Subbarao also said that RBI is running training sessions for police department at the district level to help them check proliferation of these multi-level marketing companies. “We do not have the authority to direct the police department and conducting training sessions only. The primary responsibility for controlling these entities, preventing and prosecuting culprits is with the state government,” Subbarao emphasised.
Though the state’s chief minister Mamata Banerjee, however, has earlier tried to passed the buck to the central government saying anti money laundering is not a state subject but later formed a Special Investigation Team and a high-level inquiry into chit fund companies after the collapse of the Saradha Group. The collapse of Saradha group has revised the memory of the collapse of Sanchayita Investment of early eighties which collected Rs 120 crore from the public before its offices were raised and then shut down. Only a handful of investors got a small fraction of their money back.
RBI had argued on the need for greater awareness among police, district administrators and consumers.
http://www.business-standard.com/article/finance/chit-fund-scam-rbi-bank-alerts-in-december-ignored-by-wb-govt-113042300603_1.html
Govt, RBI steps help improve NPA recovery: Minister tells Rajya Sabha
New Delhi: A series of steps taken by the Government and the Reserve Bank have helped improve recovery of bad loans by public sector banks (PSBs), Parliament was informed today.
To improve the health of the financial sector, reduce the NPAs, improve asset quality of banks and prevent slippages, RBI has issued detailed instructions to address the issues of NPA management, Minister of State for Finance Namo Narain Meena said in a written reply to Rajya Sabha today.
The government advised PSBs to take a number of new initiatives to increase the pace of recovery. Reuters
Besides, the government advised PSBs to take a number of new initiatives to increase the pace of recovery, to conduct special drives for recovery of loss assets, to put in place early warning system, to replace system of post dated cheques with Electronic Clearance System and to constitute a Board level Committee for monitoring of recovery, he added. ”The steps taken by the government and RBI have resulted in year-on-year improvement in recovery of NPAs (non-performing assets) by PSBs,” the Minister said.
The gross NPAs of public sector banks rose to 4.18 of advances by the end of December 2012, compared to 3.22 per cent a year ago. Net NPAs, which are arrived at after making provisions from the gross amount, increased to 2.12 per cent in December 2012. Meena said the Parliament has recently enacted The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 for removing certain bottlenecks in the recovery of bad debts. The Amendment Act is in force since January 15, 2013.
“As on March 31, 2012, there were 4,453 NPA accounts of above Rs one crore of nationalised banks amounting to Rs 40,951 crore,” Meena said. Finance Ministry has asked all PSBs to expedite the recovery process and bring down net NPAs to 1 percent of their total advances by the end of 2013-14 fiscal.
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