Par Panel for providing insurance cover for NBFC deposits

In order to check Saradha-type scams, a Parliamentary panel today asked government to amend the RBI Act to include deposits collected by NBFCs under the ambit of deposit insurance scheme.
"The committee are of the considered view that extension of deposit insurance will go a long way in encouraging the savers in remote areas," the Committee on Estimates said in a report tabled in Parliament today.
People in remote areas in the absence of banks are forced to "approach the unscrupulous entities, offering high interest rates, only to default in repayment at a later date, for saving their hard earned monies," it added.

The Reserve Bank of India (RBI) has admitted that many defaults during 1960s-90s by NBFCs were partly due to lack of regulation.
"The committee believe that the risk involved in extending the deposit cover can be addressed by instituting stringent regulations by the regulator," it said.
The multi-crore rupee Saradha chit fund scam cheated lakh of investors across various states.

To protect innocent investors, it suggested that insurance cover may be extended to the deposits of NBFCs either within the Deposit Insurance and Credit Guarantee Corporation (DICGC) framework by amending the relevant legislation or through creation of separate entity as favoured by the RBI for offering deposit insurance.

"Taking cognizance of rampant acceptance of deposits by unscrupulous entities from the gullible public in camouflaged manner as advance for goods or services, the committee recommend that the RBI Act be amended expeditiously to cover such deposits within the ambit of deposits," it said.
The committee are surprised to note that there is no uniformity in the definition of the expression 'Deposit' in the RBI Act, State Acts enacted for protecting the interest of depositors, it said.
"Notably, the definition of 'Deposits' under the State Acts is much wider irrespective of whether money is received or a commodity is received it can still be a deposit," it said.

However, it said the RBI has narrow definition of the term 'Deposit' in RBI Act.