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Terming unauthorised collective investment schemes (CIS) as the 'grey market' of the financial space, Securities and Exchange Board of India (Sebi) Chairman U K Sinha expressed surprise over the rise in volumes in such activity.
“The audacity and frequency with which it (illegitimate money collection) is happening is worrying and something all of us must take note of,” he said at a seminar organised by the Indian Merchants’ Chamber on Wednesday.
Sinha said Sebi has limited powers to tackle the rise in illegitimate money collection. The support of state governments is critical in tacking illegitimate money raising schemes, he added.
Regulating CIS falls under Sebi jurisdiction. However, nidhi companies, chit funds and cooperatives have been kept out of the Sebi Act.
For about four years now, the market regulator has been requesting the government to strengthen the Sebi Act and give it more powers, such as for attachment of properties and recovery of monetary penalties. Currently, Sebi has to go through a long drawn process to recover penalties imposed by it.
Sinha pegged the amount involved in such unauthorised CIS at more than Rs 10,000 crore and said that this could be one of the reasons for the dip in household savings and the share of financial products in these.
The contribution of household savings to total domestic savings has come down to 70 per cent from the highs of 75 per cent. Also, the share of financial products in household savings has come down from its peak of 55 per cent to just 35 per cent, Sinha pointed out.
“Real estate and gold are not just the two villains who are taking away investments from the financial market. There are other areas one should start worrying about - the rapid development of grey market of investment in the country,” said Sinha.
The Sebi chief maintained that the government should have a separate regulator to crack down on unauthorised money collecting schemes, as it is a huge task.
Sinha said the people investing in such illicit schemes are ordinary workers. “The process through which it is getting channelised is unfortunately taking that money out of the legal framework,” he said.
“More than Rs 10,000 crore has been raised by so-called money circulation schemes or by people, who in our opinion, are running collective investment schemes but are refusing to be under any sort of regulation,” he said.
“There is a famous instance where a company has claimed that it has refunded more than Rs 20,000 crore in the last three to four months to so-called investors out of which more than 90 per cent has been returned in cash. How feasible and credible this story can be?” Sinha wondered.
Sinha also highlighted that one company based in a north eastern state was able to raise more than Rs 1,000 crore in just one year, while the money raised by the mutual fund industry, which has been present there for several decades, was just Rs 900 crore.
