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All about Bengal's Saradha scourge
A unified agency is needed to tackle fraudulent deposit takers
Frankenstein's monster turned on its benefactor, and that's happening again in West Bengal today.
The collapse of a large deposit taker, the Saradha group, has brought protesting collection agents right to the doorstep of West Bengal Chief Minister Mamata Banerjee, whose government has given a free hand to such firms.
The group was running multiple businesses ranging from real estate and resorts to newspapers and television channels; but its main source of cash was the deposits of thousands of ordinary people in villages and small towns.
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All about Bengal's Saradha scourge
Collection agents who did well, thanks to the group's Trinamool connection, now have to face a public that fears the loss of its deposits.
What is appalling is that, even though a collapse like this was widely foreseen, the state government -- which has powers to take up depositors' complaints while investigating economic offences -- has so far done little.
The prominent among the deposit takers run, along with other businesses, multiple media operations that back the state government -- critical support when most of the mainstream media has turned against it, and as panchayat polls approach.
These firms have freely used their proximity to various Trinamool leaders to build their brands.
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All about Bengal's Saradha scourge
A Trinamool Rajya Sabha member of Parliament was until recently chief executive officer of media operations of the Saradha group and a minister is the leader of a union of Saradha employees.
A single large collapse can spread panic and lead to a rush by depositors to get their money out of other such entities, culminating in multiple collapses through a domino effect.
The social consequences of this are too horrendous to imagine.
While deposit-taking firms operate all over the country, they have been particularly active in West Bengal in recent years.
A Bill to rein in shady deposit-takers was passed unanimously by the West Bengal Assembly in 2009, but is yet to get the President's assent.
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All about Bengal's Saradha scourge
Instead of pursuing the matter with the Centre, the present state government, eager to overturn whatever the previous government had done, is still working (after nearly two years in power) on its own Bill.
It is widely recognised that there is a regulatory gap in tackling deposit takers who think up newer ways of doing business that evade existing regulatory nets.
When the law eventually catches up with such operators, they go to court -- to buy time to alienate assets.
The Financial Sector Legislative Reforms Commission has recommended the setting up of a unified financial agency, taking in all regulators, to protect depositors form mis-selling of financial products and Ponzi schemes.
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All about Bengal's Saradha scourge
These promise excessive returns and continue so long as fresh deposits can be garnered to pay exorbitant commission to collectors and those returns; such schemes collapse when the flow of fresh deposits runs out.
The capital markets regulator has also asked for a new 'single regulator' for 'these [deposit-taking] companies' that take advantage of 'loopholes in the law'.
The Centre should immediately call a meeting of all financial sector regulators and state governments to formulate a suitable law to set up such an agency.
Meanwhile, state governments, whose primary responsibility is to maintain social peace, should haul up any deposit taker offering exorbitant returns.
