The Reserve Bank of India has directed two Non-Banking Financial Companies (NBFCs), viz., Muthoot Fincorp Ltd. (MFCL) and Manappuram Finance Ltd. (MAFIL) to stop allowing the use of its premises / branches to accept deposits from public by their associate unincorporated bodies.

Muthoot Estate Investment (MEI), was collecting public deposits through the branches of MFCL located in Kerala, which is a violation of the provisions of section 45-S of the RBI Act, 1934. The Manappuram Agro Farms (MAGRO), a sole proprietary concern of Shri V.P. Nandakumar (Executive Chairman of MAFIL) was accepting fresh deposits from the public. MAFIL, which was earlier a deposit taking (Category ‘A’) company, became a non-deposit taking NBFC in March, 2011. However, its maturing deposits were being renewed with MAGRO. Both these actions were in violations of section 45-S of RBI Act, 1934.

In the case of the MEI, total amount of deposits from the public and outstanding as on 31.01.2012 was Rs. 1,913 crore. Out of these unauthorized deposits accepted by the unincorporated body, an amount of Rs. 1,173 crore was outstanding as on 30.06.2013. RBI has issued a press release and an advertisement in local newspapers informing and cautioning the public that it was not allowed to raise deposits under the provisions of the RBI Act. RBI has issued a show cause notice to MFCL under section 45-IA of the RBI Act. RBI has also referred the matter of deposit collection by MEI to State Government of Kerala for appropriate action at their end under Chapter IIIC of the RBI Act, 1934 as the State has necessary machinery and reach for action.

RBI had issued directions to the MFCL under section 45-L of the RBI Act, 1934 to desist from associating itself, its premises, branches or officials in any manner with MEI in accepting deposits from the public.

As regards MAGRO, out of Rs. 143.85 crores of public deposits held by MAGRO as on 29.12.2011, there are currently 506 customers with Rs. 93 lakhs in outstanding deposits.

A show cause notice was issued to MAFIL on 07.05.2013 for cancellation of its Certificate of Registration under the provisions of section 45-IA (6) of the RBI Act, 1934. Based on the company’s reply and the findings of the scrutiny thereon, it was concluded that MAFIL has taken steps for disassociating its name, officials, etc. from MAGRO and other promoter group entities. At present, MAGRO does not have presence in any of the branches of MAFIL. Further, an amount of Rs. 119.18 crore was transferred to an escrow account maintained with Punjab National Bank towards repayment of deposits. At present, the remaining amount of outstanding deposits is being paid out of this escrow account.

This was stated by Shri Namo Narain Meena, MoS in the Ministry of Finance in written reply to a question in the Lok Sabha.

Prohibition on unauthorized public deposits: regulator barred use of NBFC premises by associates and initiated compliance proceedings. The Reserve Bank found NBFCs had allowed unincorporated associates to accept public deposits through NBFC branches or by using NBFC officials, violating the statutory prohibition on unauthorized deposit taking; it issued public cautions, show cause proceedings under registration provisions, directions to desist from associating NBFC premises or staff with associates, referred matters to state authorities, and required transfer of funds to an escrow for repayment while regulatory proceedings continued.