Ponzi firms may tap business correspondents: RBI cautions banks

RBI has cautioned banks about business correspondents they rely on to serve customers in remote areas, as they may be used by ponzi firms to raise funds.

RBI has cautioned banks about business correspondents they rely on to serve customers in remote areas, as they may be used by ponzi firms to raise funds.

RBI has cautioned banks about business correspondents they rely on to serve customers in remote areas. (Reuters File Photo)

The correspondents, appointed through NGOs mandated by banks, serve in areas where branches cannot be set up. Their job necessitates regular relations with poor and unsuspecting rural people -- ideal targets for ponzi firms that want to raise money with the lure of absurd returns.

At recent meetings of State Level Bankers’ Committees (SLBC) of Bengal, Odisha and Tripura, RBI representatives advised bank officials to “adopt extreme caution” when enrolling NGOs for appointments of business correspondents.

“They clearly said no NGO should be enrolled unless their credentials are cross checked with different agencies,” a senior RBI official from Kolkata regional office told HT.

Banks have been directed to inform the state government about any NGO that appeared to be indulging in such activity and state government representatives have been urged to immediately act against such entities.

This new route employed by ponzi firms is similar to the initial nature of Rose Valley that pushed its schemes under the garb of marketing LIC plans. Gautam Kundu’s company sold its schemes through persons who did not posses any certificate issued by Insurance Regulatory Development Authority (IRDA), necessary under the Licensing of Corporate Agents Regulations Act, 2002.

In 2012, IRDA cancelled Rose Valley’s licence as corporate agent of LIC for unfair business practices.

Several probe agencies such CBI, ED and SFIO are conducting investigations against ponzi majors such as Rose Valley and Saradha.

NBFCs & Listing Business Correspondents

The RBI official also said that besides NGOs, banks can also enrol non-deposit collecting non banking finance companies (NBFC) to appoint business correspondents.

“But what has come to our notice is that often deposit-collecting NBFCs are getting enrolled as business correspondent agents of banks. This is quite alarming and hence the apex bank wants banks to adopt extreme caution while enrolling such NBFCs or NGOs,” the RBI official said.

Sources told HT that RBI, in association with Indian Banks Association, is considering setting up a central databank of business correspondents throughout India.

“The proposal is good but sounds tough considering the huge pool of business correspondents in the country,” said an officer of United Bank of India (UBI), the lead bank for the SLBCs in both West Bengal and Tripura.