Is extra tax to compensate Saradha victims fair? asks RBI

Srinagar: Reserve Bank Governor D Subbarao today questioned the fairness of West Bengal government's proposal to levy additional tax on cigarettes to compensate the victims of Saradha chit fund scam.

"If you go back to the West Bengal Saradha scheme, the Chief Minister said 'I will levy additional taxes on cigarettes and some other things to compensate the people who have lost money' ... Is it fair?," Subbarao said while delivering a lecture to economics students here to mark the Platinum Jubilee celebrations of Jammu & Kashmir Bank.

The general principle of banking is that the people who put money in banks should also bear the risk, he said.

"Why should all of us support people who put their money in a bank? Do you recognise that the tax payers are compensating the people who invested their money in a bank," he asked.

The Kolkata-based Saradha Group has cheated investors of crores of rupees through fraudulent money pooling scheme.

Subbarao said nefarious and unscrupulous schemes like the one by Saradha have been in operation for many years, but they have come to the fore during the last four weeks due to the scam.

"The reason it (the nefarious schemes) is happening because ordinary people... the low income people are not sufficiently aware of where they can put their money. They don't have enough avenues to put their money. They can't get into the banks like we all do. They face both formal and informal barriers," he said.

"So they fall prey to these fraudulent schemes, fraudulent people who tell them they will give 30 per cent to 40 per cent returns within six months," he added.

The RBI Governor said one of the purposes of the regulations is spreading awareness to protect people from fraudulent schemes.

"It is the responsibility of the RBI to ensure that the people trust the regulated financial institutions," he said.

He further said in case of a bank failure, the issue should be resolved in such a way that the damage is confined to the stakeholders of the bank.