The Saradha Group, which comprises over 100 entities, does not have one registered chit fund company in its fold.
However, the financial irregularities attributed to the group have been labelled ‘chit fund operations’, said T.S Sivaramakrishnan, General-Secretary, All-India Association of Chit Funds.
CHIT FUnd Act
The association has over 10,000 registered member-companies across the country, of which over 80 per cent are in the southern States, mainly Tamil Nadu, Kerala and Andhra Pradesh.
Sivaramakrishnan told
On the Saradha Group, he said it had 100-plus companies with business interests spread across realty, construction, tours and travels, exports, agro, livestock, foods, advertisement agencies and a presence in the media.
However, when the market regulator cracked down on the group, the root cause was said to be its chit funds.
On some jewellers floating schemes similar to chit funds, he said if the prize money was a component of the scheme, it does not come under the Chit Fund Act.
Sivaramakrishan said chit funds were not allowed to accept deposits from public. Such funds are governed by the Chit Funds Act, 1982 and administered by the State Governments. There is an office of ‘Registrar of Chit Funds ‘in every State to monitor the business.
Further, chit fund regulations were more stringent than other deposit accepting companies. Utilisation and appropriation of subscribers’ money was strictly prohibited.
Besides, the fund had to provide for capital adequacy and other prudential norms.
Importantly, chit funds, as of now, are not allowed to carry on other businesses without the permission of the Registrar/State Governments.
Asked what the association was doing to curb unregistered chit fund operations, which are rampant in many States, he said it was for the authorities to initiate proceedings and bring the offenders to book.
Strict rules
The police are empowered to take action, but unfortunately, little has been done so far, he said.
On the practice of many chit funds offering loans as an allied business activity, he said the rules were strict and it was not possible for registered members to carry on financing as part of their business.