Saradha scam: RBI governor, Sebi chief may appear before House panel next week

The parliamentary panel, headed by BJP leader Yashwant Sinha, today questioned Finance Secretary R S Gujral and revenue secretary Sumit Bose

In the wake of by the multi-crore Saradha Group scam in West Bengal, Parliament’s standing committee on finance today decided to summon Reserve Bank of India (RBI) Governor D Subbarao and Securities and Exchange Board of India (Sebi) Chairman U K Sinha next week, to grill them on the failure of the regulators to check such frauds.

The parliamentary panel, headed by Bharatiya Janata Party leader Yashwant Sinha, today questioned Finance Secretary R S Gujral and Revenue Secretary Sumit Bose on the matter. Gujral and Bose admitted the regulators didn’t exchange information and this made investigations and concrete action against chit fund companies difficult. They said there was a need to overhaul the entire system to check chit fund frauds, those privy to the development told Business Standard.

The officials admitted there was “collective failure” on the part of the ministry, state governments and regulators to stop the menace.

“Some of the members suggested there should be a single regulator to monitor chit fund companies. This issue will be debated in the next few meetings,” said those in the know of the development.

The Financial Sector Legislative Reforms Commission (FSLRC) has recommended all financial regulators, except RBI, be merged to form a single unified regulator for the sector. Subsequently, RBI could also be merged with the regulator, FSLRC has recommended. The FSLRC report is being considered by the government.

Last month, Saradha Group went bust, leaving scores of investors in the lurch. Those tracking the sector have blamed the mushrooming of such companies on low penetration of formal banking in the country.

As these companies take advantage of the loopholes in the legal structure, the government has set up an inter-ministerial group under the Department of Financial Services to suggest changes in various laws to monitor these firms. A meeting of the group, scheduled to be held yesterday, has been deferred to May 23.

Laws governing chit funds and allied schemes include the Companies Act, 1956, the Securities and Exchange Board of India Act, 1992, the Prize Chits and Money Circulation (Banning) Act, 1978, the Chit Funds Act, 1982, and the Reserve Bank of India Act, 1934.