Kerala Chit Funds See Red As State Amends Act
The Kerala Chitty Foremen's Association (AKCFA) has flayed the two recent amendments made to the Kerala Chitties Act of 1975 and said the implementation of these amendments would spell the death knell for the chit industry in the state.
While the first amendment makes it compulsory for all chit companies registered outside the state but having 20 per cent or more of its subscribers residing in Kerala to get themselves registered under the provisions of the above Act, the second amendment says the aggregate amount of chitties floated by any chit company should not exceed 50 per cent of the net assets of the foreman.
Urging the Kerala government to immediately scrap these two amendments, AKCFA vice president A P George said these amendments would adversely affect the working of private sector chit companies in Kerala.
Elaborating on the impact of the first amendment he said that bringing the chit companies registered in other states under the purview of the Kerala Chitties Act of 1975 would make it mandatory for them to comply with many stringent provisions of this Act though they are already complying to the Central Chitties Act as well as the relevant provisions of Reserve Bank of India Act applicable to chit companies.
And since most of the chit establishments are limited companies they are also regulated by the Companies Act. Hence, there is no need for further restrictions.
In fact, with a view to escape the stringent provisions of this Act, many Kerala-based chit companies had migrated to other states and got themselves registered in places like Faridabad, Bangalore and Chennai as soon as it was enacted in 1975, he maintained.
"Moreover, as government owned companies like the Kerala State Financial Enterprise (KSFE) and many co-operative societies that conduct chit funds business are exempted from the purview of the Kerala Chitties Act, this amendment deprives the private sector companies of a level playing field," he added.
Emphasising that the second amendment restricting the aggregate amount of chitties of a company to below 50 per cent of its net assets will make it practically impossible for it to continue in business, AKCFA joint secretary Baby Mookken said, "At present the aggregate amount of chitties of more than 90 per cent of the 10,000 chit companies operating in Kerala will be in the range of three to four times their net assets."
So they will not be in a position to start any new chitties and if new chitties are not started, the foreman would not be able to pay chitty amounts to the auctioned and prized subscribers. And because of that even the subscribers who have received chitty amounts will be reluctant to repay the amounts that he had earlier collected from the companies, he said.
Revealing that the total amount currently advanced by around 10,000 chit companies to their subscribers in Kerala would amount to around Rs 10,000 crore, Mookken said, "Around 90,000 employees are working with these companies. And if the family members dependent on these employees are taken into account, the closure of these companies because of these new amendments will adversely affect the livelihood of around four lakh people in the state."
Emphasising that the Kerala government has brought these two amendments to safeguard the jobs of one thousand employees of KSFE, as the latter cannot compete with private sector companies on a level playing field, he said, "The state government is therefore sacrificing the livelihood of four lakh citizens in order to save the jobs of 1,000 government employees."
Stating that a delegation of AKCFA would soon be meeting the chief minister and finance minister to request the withdrawal of these two amendments, Mookken said, "We will also submit a new draft which will allow the state government to levy an annual registration feel of Rs 1,000 from each chit company. That will give the state government an annual additional revenue of Rs 1 crore."