MLM / Chain Money
Deposits raised by unregulated entities are on the radar of Finance Ministry
India is a country where business is largely carried on in the form of proprietary concerns and partnership firms, and not in the form of companies and Limited Liability Partnerships (LLP). The way of doing business is quite informal, including modes of raising funds for business.
 
While a few companies (Saradha, Sahara, Sumangal, and Sanchayita) were responsible for the scams in the past, all those doing business will have to bear the brunt of their acts. When the deposit rules under the Companies Act, 2013 became stricter, it was obvious for people to think of LLPs. Most people would prefer not to do business in a highly regulated environment, especially when the business model itself is fairly simple. Fund requirement is a perennial issue and, depending on the size of business and capacity of the businessman, the source varies. So, one may not necessarily go to a bank or a non-banking finance corporation (NBFC) or one’s relatives to raise funds for a business, and instead may go to  ‘Khanna uncle’ or ‘Balbirbhai’. However, the enforcement of Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Act, 2016 (the Bill 2016) will curb this practice. Looking at the penal provisions, businessmen would prefer to suffer losses rather than to go to jail.
 
Section 45S of the Reserve Bank of India (RBI) Act also prohibits acceptance of deposits by unincorporated bodies. The intent of this bill is also to spread the net on all deposit-takers who accept or solicit deposits to defraud investors, and not to meet the fund requirement in the ordinary course of business. However, the exclusion carved out does not adequately consider options like borrowings from ‘Khanna uncle’, unless they are obtained as advance for supplying goods, or rendering service, or received as credit. Similarly, raising money through issue of bonds, debentures by LLP or trust has not been included, unless these entities are Alternative Investment Funds (AIF) or mutual funds.
 
In September 2015, SEBI in an informal guidance given to Vijay Suraksha Realty LLP, conveyed that while the definition of ‘debt securities’ under SEBI (ILDS) Regulations 2008 covers securities issued by a LLP (a body corporate), the definition of ‘issuer’ talks specifically about company, public sector undertaking or statutory corporation. Further, the option for LLPs to raise funds from other sources, not partners or relatives of partners, gets prohibited under this Bill.  
 
Every Ponzi scheme is followed by a new law and such reactive law-making adds to the woes of genuine entrepreneurs. The penal provisions under such law are equally scary. ‘Scheme’ means to make plans, especially in a devious way or with intent to do something illegal or wrong. The intention is to prohibit such persons from defrauding investors. However, funds raised from third person for genuine business purpose cannot be regarded as a scheme for raising deposits in a country where a large part of business is run in an unorganised manner.
 
So each time an unincorporated body or LLP requires funds, it will have to look at the Central Government and plead ‘Prabhu path pradarshitkariye’ to wait for the Central Government to notify deposit schemes that shall not be treated as Unregulated Deposit Schemes for the purposes of this Act. Instead of specifying what schemes can be excluded, a litmus test must be provided such that meeting of any of those conditions would regard the loan as unregulated deposit. 
 
Considering the above mentioned points and keeping in view the small businesses, this Bill may be made lenient for particular cases. Protection should be given to those who intend to be protected, therefore, the known investors (other than relatives) should also be able to lend to such businesses.
 
(CS Vinita Nair-Dedhia is partner at Vinod Kothari & Co)

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Foreign stake in HDFC Bank crosses 74% limit again: RBI
Private sector HDFC Bank has again crossed the foreign investment limit prescribed as a percentage of paid-up capital for Indian companies, the Reserve Bank of India (RBI) said on Friday
 
Only a day earlier, on Thursday, the RBI announced that such investments had fallen below the ceiling.
 
The apex bank had said that foreign investors' holdings in HDFC Bank had fallen below the threshold limit prescribed under the foreign direct investment (FDI) policy. 
 
In a raction, foreign investors bought the stock, crossing then limit.
 
"The foreign shareholding by American Depository Receipts (ADR)/Global Depository Receipts (GDR)/ Foreign institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs)/ Foreign Direct Investment (FDI)/Non-Resident Indians (NRIs)/ Persons of Indian Origin (PIOs) in M/s HDFC Bank Ltd has crossed the overall limit of 74 per cent of its paid-up capital." an RBI statement said on Friday.
 
"Therefore, no further purchases of shares of this company would be allowed through stock exchanges in India on behalf of Foreign institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs)/ Non-Resident Indians (NRIs)/ Persons of Indian Origin (PIOs)," it added.
 
The RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a day-to-day basis.
 
The HDFC stock surged initially on Friday after the RBI removed the ban on buying by FIIs, but fell later in the day to close at Rs 1,377.15 a share, up 49.80 points, or 3.75 per cent, over its previous close on the BSE.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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Dry ATMs rebut Jaitley's claim of swift recovery post note ban
Despite the claim of Union Finance Minister Arun Jaitley that printing of new money was done efficiently after the November note ban and things were "normalised" in a few weeks, on Friday many ATMs here were found gasping for cash.
 
As IANS went around the ATMs in the national capital, it found that the situation had only marginally improved from what it was in the thick of turmoil that followed the demonetisation and that most of the cash machines still were bone dry.
 
Only one ATM in Laxmi Nagar of east Delhi was found dispensing cash out of a total of eight visited by IANS. Rest bore either a 'no cash' sign or were simply 'out of order'. 
 
Similarly, in the Yusuf Sarai area of south Delhi, the ATMs of HDFC Bank, Canara Bank, Punjab National Bank (PNB), Kotak Mahindra Bank and IndusInd Bank were found cashless. An Axis Bank ATM was the only one found with cash in the vicinity.
 
Same situation prevailed in top locations like Sansad Marg (Parliament Street), where none of the four State Bank of India (SBI) ATMs had cash, in addition to an Axis Bank machine near the YMCA nearby, which has not had cash since the demonetisation on November 8 last year.
 
One found the situation more telling in Connaught Place, the bustling market in the heart of the capital, where as many as eight ATMs were found to be either dysfunctional or without ash over a stretch of two blocks.
 
These included four ATMs of SBI, two of PNB, and one each of Bank of India and Bank of Baroda.
 
Speaking at the 11th Foundation Day function of the Security Printing Minting Corporation of India Ltd (SPMCIL) on Friday, Jaitley said: "People used to guess it will take a year or seven months for remonetisation. But in a few weeks, things were normalised." 
 
He also applauded the security printing presses for their efficiency. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

marcelmdesouza

1 week ago

Only promises are made. Cash flow is still not normalised in Banks

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