States hold major responsibility to plug fraud scheme: RBI

RBI's was referring to the chit fund scam of Saradha Group which allegedly defrauded thousands of investors

State governments hold a major responsibility of taking steps against fraudulent schemes that end up collecting money from a large number of people, Reserve Bank Governor D Subbarao said today.

"We are concerned about the fraudulent schemes across villages of the country. Money circulation schemes, marketing schemes that are illegal... Neither the government nor the regulatory institutions have a complete idea of (such) institutions. We are trying to understand how these people operate in villages," Subbarao told reporters here after the Central Board meeting of the central bank.

He said it was not a regulatory "failure", and "those institutions which are regulated are being effectively supervised. But as a public policy institution, the Reserve Bank has responsibility."

Subbarao added: "The government has responsibility. I believe the primary responsibility of this is with the state governments, because only they have the reach for the necessary surveillance of the enforcement against these illegal schemes."

He said that in order to study how these schemes were operating, the central bank has decided to deploy its officers in Tamil Nadu on how such schemes operate.

"We have decided that in Tamil Nadu we will do an exploratory study by deploying junior officers of the RBI in one district of Tamil Nadu in consultation with the state government.

"There will be 11 teams. Each team will cover two or three villages intensively (in a district), talking to people, trying to understand their income and expenditure stream, and why they are attracted by these fraudulent schemes," he said.

Observing that there was a need to understand how these fraudulent schemes operate, he said: "When our understanding improves, we will take up appropriate action. These schemes are unlawful and they are beyond regulation."

The RBI's move comes in the wake of chit fund scam of Saradha Group which allegedly defrauded thousands of investors, including the poor, in West Bengal.