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Deposit taking should be restricted to banks: RBI chief

Updated: Jun 05, 2013 05:27:35pm
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Mumbai, Jun 5 (KNN)  In the wake of the recent scam in chit fund the Reserve Bank of India Governor D Subbarao today said that the job of deposit taking from public should be allowed only to banks.

“The focus on consumer protection is important because thousands of low income households are lured into fraudulent financial schemes by the promise of unviably high rates of interest. In the Reserve Bank’s view, deposit taking should eventually be restricted only to banks which are tightly regulated. Deposit collection by non-banking companies should be gradually minimized, and eventually eliminated,” said Subbarao.

Many of these non-financial companies have shut down particularly those dealing in chit fund but not before cheating and wiping out the entire life savings of millions of low income households.

Subbarao was speaking at the 7th International Banking and Finance Conference 2013 here.

He further called for reviewing the present regulation to protect investor’s interest.  

“There is need to review the regulatory oversight of this sector keeping in view the mandatory and relative comparative advantages of the financial sector regulators,” he said.

He emphasised that deposit collection by non-banking companies should be gradually minimized, and eventually eliminated.

He asked for state government involvement in the enforcement of law involving the non-banking sector.

“Much of the fraud in the non-bank sector happens through unlawful and fraudulent schemes which should not be operating. This reinforces the importance of surveillance and enforcement, especially by the state governments,” he said.  

He also cautioned against shadow banks which according to him have emerged outside of regulatory oversight.  

The shadow banking system is made up of financial entities which have the same functions as traditional banks but which are subject to little, if any, regulation.  Like traditional banks, shadow banks provide credit and liquidity but, unlike their traditional counterparts, they do not have access to central bank funding or safety nets like deposit insurance.

Shadow banking includes money market funds, private equity funds, hedge funds, securitisation, securities lenders, and structured investment vehicles. (KNN) 

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