RBI pulls up Manappuram for accepting public deposits

The Reserve Bank of India (RBI) has warned Manappuram Finance not to accept deposits from the public, after the Kerala-based gold loan company was found to be accepting deposits at its branches following its becoming a non-deposit accepting NBFC (non-banking financial company) on March 22, 2011.

“Acceptance of deposits either by Manappuram Finance Limited or by Manappuram Agro Farms (MAGRO) is punishable with imprisonment,” the central bank said. In a press release, it also cautioned the public that “those who deposit money with Manappuram Finance Limited or MAGRO do so at their own risk”.

On its part, Thrissur-headquartered Manappuram denied the RBI’s allegation, and said the management would soon meet the regulator on the issue. “We have not being accepted ant deposits ever since we became a non-deposit taking NBFC,” according to Manappuram Finance chairman V P Nandakumar. “We are looking to meet the RBI officials to get this clarified -- as this is not the truth.” Also, the company has kept the gold business “completely away” from MAGRO, he added.

The regulator also pointed out that Manappuram Finance has been issuing deposit receipts in the name of MAGRO, a sole proprietary firm of Nandakumar, who is the firm’s executive chairman. MAGRO is not incorporated, and thus cannot accept deposits, the central bank said. “In terms of Section 45-S of the RBI Act, acceptance of deposits from the public by MAGRO, which is an unincorporated body, is also prohibited,” added RBI.

Moreover, instead of returning the matured deposits, fixed deposit receipts were being issued to the customers in the name of MARGO, the regulator noted.

Manappuram, however, denied the allegation made by the regulator and said the management will meet the regulator soon on the issue . " We have not being accepted ant deposits ever since we became a non-deposit taking NBFC. We are looking to meet the RBI officials to get this clarified as this is not the truth," said VP Nandakumar, chairman, Manappuram Finance. Also, we have kept the gold business completely away from MAGRO, he added.

The gold loan company clarified it had by choice decided to convert itself into a non-deposit taking entity and the only money it is accepting from public is on account of the non-convertible debentures issued by it. "However, it is accepting investments through secured Non-Convertible Debentures (NCDs) and Subordinate Bonds which do not fall under the definition of public deposits," said Manappuram in a press statement.

According to Manappuram Finance, the existing depositors of the company were mostly repaid (with interest) prior to the re-categorisation. The balance portion of the deposits was held in an escrow account with Punjab National Bank, Thrissur branch. "This was informed to RBI on March 11, 2011," said the release.

“Acceptance of deposits from the public, including the renewal of matured deposits by that company, thus, amounts to contravention of the terms and conditions of the certificate of registration currently held by it and the directions issued to the Reserve Bank and thus punishable under the Reserve Bank of India, 1934 (RBI Act),” the regulator said.