Letters: Not a prudent decision

Financial scams as an outcome of unscrupulous CIS are akin to infamous ponzi schemes of 1970s, 1990s

With reference to Somasekhar Sundaresan’s article, “A tightrope walk for Sebi” (May 5), relinquishing the statutory mandate to regulate collective investment schemes (CIS) may not be a prudent decision by the capital market regulator.
 
Financial scams as an outcome of unscrupulous CIS are akin to infamous ponzi schemes of the 1970s and 1990s. They have deteriorated the financial health of depositors and the state’s financial systems of different orders.
 
The most recent instance is from early 2012 when the chairman of Saradha Group realised it would lose returns from its media and realty businesses. The group might have collapsed defaulting on repayments in due course. Eventually, a financial racket of around Rs 20,000 crore broke out in April 2013 as the group failed to honour its debt obligations. After Saradha’s breakdown, several chit fund agencies shut shop. The Securities and Exchange Board of India eventually stepped in and introduced amendments to the Sebi Act, 2013. It was promised that the regulator would resell the assets of defaulted agencies and investors to get some amounts — may be part of the principal amounts paid — from their investments in return.
 
In the light of several scams and fragile money market functioning, Sebi’s decision to deregulate CIS would hamper the informal financial system that earlier allowed the survival of chit fund agencies. The decision might quash the hopes of depositors, who have little understanding of the money market or capital market.
               
Kushankur Dey  Bhubaneswar

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