Muthoot says associate not collecting deposits

A day after the Reserve Bank of India (RBI) barred Muthoot Fincorp’s partnership firm from accepting public deposits, the Kerala-based non-banking finance company said the associate, Muthoot Estate Investments, has stopped collecting deposits.

“We are discussing this with the regulators and will be strictly following the RBI directives in this regard,” Thomas John Muthoot, chairman of Muthoot Fincorp, said in a statement.

He added that the deposits with Muthoot Estate Investments are adequately backed by assets.

On Thursday, the banking regulator prohibited Muthoot Estate Investments from mobilising deposits from public and directed Muthoot Fincorp to stop allowing the use of its branches and officials for collecting the deposits.

Muthoot Fincorp also said that RBI has not banned the company from issuing debentures that were secured by its assets.

“There is no restriction or ban on Muthoot Fincorp for issuing secured debentures, as is being done now,” it said.

Promoters of Muthoot Fincorp are partners in Muthoot Estate Investments, which has been collecting money from public in the form of fixed deposits, cumulative deposits and special deposits. The firm has been using Muthoot Fincorp’s branches in Kerala for mobilising these deposits.

Muthoot Fincorp admitted that it was registered with RBI as a non-deposit-taking non-banking finance company, but clarified that it has never accepted any deposit from the public. It added that Muthoot Estate Investments was primarily engaged in development of hotels, real estate and power generation and hence was collecting funds from the public.

This is the second time in little over a month RBI has cracked the whip on a non-banking finance company for accepting public deposits. In February 2012, the banking regulator issued a notice directing directed Manappuram Finance, another Kerala-based non-banking finance company, not to collect deposits from the public.

RBI had said neither Muthoot Fincorp nor its partnership firm was allowed to collect public deposits according to norms.