More power for state-level committees against ponzi schemes

NEW DELHI: The government is planning to give state-level coordination committees (SLCCs) the power to regulate companies running collective investment schemes, a move aimed at checking illegal deposit taking and Ponzi schemes.

An SLCC coordinates between a state government and financial institutions to ensure development of credit-based programmes in the state. It has representation from banks, departments of the state government, key intelligence agencies and the local chapters of the financial sector regulators. SLCC meetings are convened by the Reserve Bank of India.

The proposal to empower SLCCs was made by an inter-ministerial group set up by the finance ministry after it failed to secure a consensus on setting up of a central coordinating agency to share information between regulators, central and state governments.

"There were structural and functional issues of setting up such an agency," a finance official said on condition of anonymity. "Besides, the idea is to gather information and take corrective action against unincorporated bodies and unauthorised entities collecting deposits, which can be done through such a platform."

A parliamentary panel headed by former finance minister and Bharatiya Janata Pary leader Yashwant Sinha had also suggested single regulator to oversee the functioning of investment schemes promising unreasonable returns.

The official quoted earlier said the Department of Information Technology will also be roped in to help regulate online deposit collection schemes floated by foreign-based entities.

At present, around 63 companies are being investigated by the Serious Fraud Investigation Office (SFIO) for fraud and cheating under the Companies Act of 1956.

Finance minister P Chidambaram had earlier pointed out that under the current arrangements, no regulator is "unambiguously" in-charge of overseeing collective investment schemes.

Under the new framework, which is expected to be finalised soon, SLCCs will hold meetings every quarter to assess complaints and take corrective actions on them.

"If required, the group can meet monthly depending on the number of complaints and past record," the official earlier said.

"It was also suggested in the inter-ministerial meeting that RBI should redefine the criteria for registration of non-banking financial companies (NBFCs)," the official said.

The inter-ministerial group, set up following the Saradha chit fund scam in West Bengal, has representation from the revenue and economic affairs departments in the finance ministry, ministry of corporate affairs (MCA), RBI and Securities and Exchange Board of India ( Sebi).

"Bringing states on the board is a step in the right direction. Implementation will only be possible if there is information sharing between local authorities and key regulators like Sebi and MCA," said Amit Jain, partner at BMR Advisors.

Earlier this year, the government had promulgated an ordinance conferring powers upon Sebi to regulate any pooling of fund amounting to at least Rs 100 crore and further enabling the market watchdog to indemnify investors from the disgorged amount.