Modi Cabinet Clears Chit Funds and Unregulated Deposits Bill for Investors

In order to protect the savings of the investors, the Union Cabinet chaired by the Prime Minister Mr. Narendra Modi has given its approval to introduce the two important bills in the Parliament. The first one is “ Chit Funds (Amendment) Bill, 2018 ”, which is meant for change in chit fund law to protect small savers from ponzi schemes floated by companies such as Saradha and Rose Valley.

Another bill that got approval is “Banning of Unregulated Deposit Schemes Bill, 2018” in parliament, this also includes Ponzi schemes and the ones accepting cryptocurrencies.

Chit Funds (Amendment) Bill, 2018

In a chit fund scheme, the small investors come together for a predetermined time period and contribute to a common pool at regular intervals. Then the collected pool of money is loaned to the most deserving member internally, through a bidding mechanism. To remove the bottlenecks of the Chit industry and to increase the financial access, the Union Cabinet has given approval to the Bill.

The Finance Ministry has proposed to amend the Chit Funds Act to limit participation to only “fraternity funds” and to differentiate its working from “Prize Chits”. The government is also changing the 1982 law to allow e-auction of chit funds. The proposed Bill will allow two minimum required subscribers to join through video conferencing duly recorded by the foreman, so that there will be proof and to discourage default by them. Currently, section 16 needs at least two subscribers to be physically present at the auction for the chit to be confirmed by the registrar. In this proposed act the physical presence of subscribers towards the final stages of the Chit may not be forthcoming easily.

Further, the proposed bill will allow the state government to prescribe the ceiling and to increase it from time to time. Currently the ceiling of one hundred rupees set in 1982 will be removed.

Additionally, the ceiling of the foreman’s commission is raised to maximum of seven per cent from current 5 per cent.

Banning of Unregulated Deposit Schemes Bill, 2018

The Union government has given approval to this bill in order to prohibit unregulated deposit-taking activities to dupe people and introduce strict punishment for promoting and operating the unregulated deposit-taking scheme. The firms running such schemes take advantage of existing regulatory gaps and lack of strict administrative measures.

Moreover, the proposed Bill has highlighted three different types of offences that include running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes. There will be severe punishment and heavy pecuniary fines who will be guilty. The Bill has provided provisions for the repayment of deposits in cases where such schemes raise deposits illegally.

Additionally, the bill will enable the creation of an online central database. This is for the collection and sharing of information on deposit taking activities in the country.

Overall, the Government is taking steps to protect the investors and to improve the financial system and its reach.