The West Bengal government, Reserve Bank of India and Securities & Exchange Board of India (Sebi) have jointly chalked out a plan to prevent the formation of chit funds in the state.
The strategy involves cracking down on the funds as well as increasing public awareness on the flip side of investing funds with the schemes.
Disclosing the preventive strategy to the press, state finance minister Asim Dasgupta pointed out that decreasing interest rates of small savings instruments was pushing small investors into the arms of chit funds as they offered higher returns.
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At the same time, Dasgupta played down the immediate introduction of an Act or ordinance empowering the police to take suo moto action against errant fund owners. Such legislation has been implemented in Andhra Pradesh and Maharashtra, leading to elimination of chit funds.
Sources said that the government was wary about discussing the legislation before the Left Front has gone through the draft and approved. In the last fortnight, the government faced embarrassment when the ruling party scuttled a proposed ordinance to tackle law and order problems after the chief minister had said such an Act would be introduced.
Dasgupta said the government had urged the apex bank and the market regulator to bring the fraudulent activities of the firms to the notice of the government irrespective of whether the funds come directly under their purview.
He said "the government has confidence" to destroy the flourishing chit fund industry if it was informed timely by the monitoring authorities. Prior to the press conference, the minister met representatives of Sebi and RBI. The finance minister will also discuss the issue with the Department of Company Affairs and Registrar of Companies.
He added that the state government had come to know that 85 firms had so far mopped up nearly Rs 100 crore from the market. Of these, 75 were linked to non-banking finance activities and thereby came under the RBI net and the balance 10 were under Sebi.
The government will meet Sebi and RBI representatives every Friday till chit funds raising money from investors promising them huge returns are eliminated. Dwelling on the chit funds which had gone down with public money, he said the government had frozen bank accounts of the firms' owners and would attach properties as well.