Banning Unregulated Deposits Schemes – Big Concern for Small Businesses
With an aim to further fortify the deposits-taking activities, the President of India, on 21 February 2019, promulgated the Banning of Unregulated Deposit Scheme Ordinance, 2019 (BUDs Ordinance) which will prohibit the illicit schemes used to dupe the financially illiterate and poor people. 
 
On the regulatory front, various steps have been taken by the Reserve Bank of India (RBI) in the past to protect the interests of depositors dealing with deposit-taking non-banking financial companies (NBFCs). Also, acceptance of deposits by unincorporated bodies is prohibited under the RBI Act, 1934. The move will not only prohibit ill-gotten deposit schemes but will also protect the interests of small businesses and individuals of both regulated and unregulated deposit schemes.
 
When it comes to borrowing money for meeting various financial commitments, small businesses like partnership firms or proprietorship concerns raise fund from different sources which are largely informal. Enforcement of BUDs Ordinance will disallow various unregulated and unorganised deposit-taking activities. 
 
Deposits for Partnership Firms and Proprietorship Concerns 
 
To avoid numerous compliance obligations under the formal credit sector, the firms and individuals generally approach money-lenders, relatives, friends, etc, for availing loans and credits which are not regulated by any regulatory body like the RBI. This unorganised credit sector lacks proper lending practices and administration, failing which leads to the debt-trap and fraudulent schemes. This concern has now been addressed with the enforcement of BUDs Ordinance.
 
Banning Bonafide Borrowers!!! 
 
By and large, these entrepreneurs are dependent on such informal financial sector where it is easier to obtain loans with nil documentation and compliances. Given this, any amount in the course of, or for the purpose of, business can be raised irrespective of the fact that it is obtained under an unregulated scheme. However, when it comes to borrowing money to meet other financial obligations/personal commitments, no relaxation has been provided.
 
The question that arises is: What will be the appropriate source of finance for genuine borrowers who are in need of very small amounts of funds but will face huge troubles in raising such funds from unregulated sources? It is expected that such a dilemma will be addressed by the government in one way or the other soon. However, in accordance with the currently prescribed matter, a brief analysis has been discussed below. 
 
Case Studies and Analysis
 
 
In all the aforementioned cases, any amount received for or in the course of business is allowed to be accepted as deposits.
 
Analysis and Conclusion
 
While the government’s attempt to restrain the unregulated financial sector to help in keeping track of every deposit-taking transaction, whether regulated or not, is commendable,   the real test will be the successful execution of the above proposal.
 
Furthermore, a problem arises when the common man would have to depend upon only a selected sector for every minute financial requirement of his. While approaching such a selected sector for fulfilling fund requirements will make the financial sector more organised, traceable and transparent, the fact remains, however, that such a high level of supervision will increase the difficulty for the weaker sections of the society. 
 
Certain exemptions can be provided by the government for such small businesses and individuals requiring funds for their day-to-day financial commitments and, simultaneously, relaxing the lending norms under the formal and organised financial sector can also be provided. 
 
(Shaifali Sharma works as executive at Vinod Kothari & Co
 
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    Ismail Bandookwala

    7 months ago

    What happens to P 2P schemes of companies such as Finzy?

    ED attaches Nirav Modi's properties worth Rs 147 cr
    The Enforcement Directorate (ED) on Tuesday said it has attached properties of absconding diamantaire Nirav Modi and his associate companies to the tune of Rs 147 crore in connection with its ongoing probe into the Punjab National Bank (PNB) fraud case.
     
    The agency in a statement said that the action was taken under sections of the Prevention of Money Laundering Act (PMLA) 2002.
     
    "The ED has provisionally attached movable and immovable properties located in Mumbai and Surat, having market value of Rs 147.72 crore consisting of eight cars, plant and machinery, consignments of jewellery, paintings and immovable property, owned by Nirav Modi and his group companies, namely Firestar Diamond International Private Limited, Firestar International Private Limited, Radheshir Jewelry Company Private Limited and Rhythm House Private Limited," the statement said.
     
    The ED claimed that during investigation, it was revealed that substantial proceeds of crime obtained fraudulently by the Nirav Modi-owned group of firms Solar Exports, Stellar Diamonds, Diamond RUS from PNB were diverted to the absconding diamantaire, his relatives and entities controlled by him. 
     
    The ED had earlier attached properties in India and abroad to the tune of Rs 1,725.36 crore. 
     
    Besides the properties, the ED had also attached gold, diamond, bullions, jewellery and other valuables worth Rs 489.75 crore. 
     
    Nirav Modi and his uncle Mehul Choksi are under probe by both the Central Bureau of Investigation (CBI) and ED. The ED filed money laundering cases against them and others on February 15 on the basis of an FIR registered by the CBI. 
     
    The ED has till date attached properties worth Rs 4,765 crore of Choksi and Nirav Modi.
     
    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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    vidhata bhide

    7 months ago

    "Banning of Unregulated Deposit Ordinance-2019, exempts Individual, Firm, Companies & LLP etc. for taking any loan and deposit for their course of business as per section 2(4) e,f,l and other provisions.

    No decision on taking Jet Airways to NCLT: SBI
    The State Bank of India (SBI) on Monday said no decision has been taken on moving the National Company Law Tribunal (NCLT) to recover loans from private carrier Jet Airways and called media reports in this regard "speculative".
     
    "Reports have been appearing in the media about an SBI decision to refer Jet Airways to the NCLT. These are totally speculative and the SBI would like to state that no such decision has been taken," an SBI spokesperson said. 
     
    Following reports of the state-run bank having decided to take the airline to the NCLT, Jet Airways shares lost 5 per cent in early trade on Monday but recovered somewhat to close 3.70 per cent down at Rs 227.95 per share.
     
    Shareholders of the beleaguered airline had, at an extraordinary general meeting (EGM) here on Thursday, approved by an overwhelming majority a proposal to convert a part of the company's loans into shares.
     
    The development assumes significance as the approval was required to go ahead with the provisional resolution plan (BLPRP) led by the consortium of the lending banks. As part of the plan, public sector lenders will become the largest equity owners of the airline, virtually making it a nationalised carrier.
     
    According to the bank sources, overseas carrier Etihad, which holds 24 per cent stake in Jet Airways, abstained from voting on various proposals during the EGM.
     
    On Friday, Punjab National Bank (PNB) said the bankers' consortium is finalising Jet Airways' resolution plan for the long term as it favours preserving the airline's value.
     
    "It is too premature to tell about the interim funding plan (of Rs 550 crore). Bankers are working on it and the SBI has taken a lead," PNB CEO and MD Sunil Mehta said at a bankers' event.
     
    "Let the entire plan be worked out first. The consortium is looking at the options. Jet's resolution is a growing concern and we would like to preserve (its) value," he said.
     
    Both the SBI and the PNB are said to have agreed to provide Jet Airways with Rs 500 crore interim funding to continue operations until a long-term restructuring plan is worked out for its Rs 8,000-crore debt.
     
    Under the BLPRP, lenders are to convert part of the airline's debt into 11.4 crore shares at a consideration of Re 1 per share, as per RBI norms.
     
    Subsequently, appropriate interim credit facilities would be sanctioned to the airline by lenders.
     
    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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