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RBI finally asks Margardarshi Financiers, run by Press baron Ramoji Rao, to stop accepting public deposits; Funds to be transferred to Escrow account to refund depositors

By TIOL News Service

NEW DELHI, DEC 01, 2006 : ONLY a fortnight back TIOL had carried an 'Exclusive Story' headlined - 'How safe are public deposits with Press baron Ramoji Rao, HUF? Will MoF or RBI answer this question, Please?. And we are happy to report tonight that the MoF has come out with an answer laced with details about the concrete steps taken. The MoF topbrass had instructed the RBI to look into the complex-sounding issue and take appropriate steps.

And kudos to RBI for paying adequate heed to the outcry in the media. It is learnt that RBI had deputed its senior functionaries to hold meeting with the representatives of the Ramoji Rao, HUF. In the due course of meeting, the senior executives of the unincorporated body intimated the bank regulator that they had stopped accepting deposits, including renewal, from September 16, 2006.

The RBI has also given a few directions to safeguard the public deposits. The details are as follows :

++ It shall not accept any fresh deposits or renew matured deposits and thereby ensure that there is no violation of the RBI Act 1934;

++ Deposits are paid as and when deposits mature and any violation could attract attention under the provisions of the Andhra Pradesh Protection or Depositors of Financial Establishments Act 1999.

++ To put in a place a mechanism to monitor the assets of the HUF so they are not eroded compromising it’s capacity to discharge obligations to the depositors.

The Margardarshi Financiers, the flagship entity, has also agreed to deposit an equivalent amount of unclaimed deposits in an ESCROW account on the due date and utilize the disinvestment proceeds to meet the depositors’ liability which are consistent with the three element approach.

The RBI is going to closely monitor the developments and take appropriate action as and when considered necessary.

What led to this controversy was the outcry that Ramoji Rao, HUF is an unincorporated body and it cannot accept public deposits in violation of Section 45S of the RBI Act 1934. The relevant Section prohibits partnerships firms or any unincorporated body of individuals from accepting any deposits from the public unless it is from relatives. It was alleged that the Margardarsi Financiers had raised a huge sum of deposit from the public as on 31st March 2005 and had reported accumulated losses.

Though none doubts the creditworthiness of Ramoji Rao, HUF which enjoys better credibility than many NBFCs and banks but as per law it was not proper. TIOL had analysed the issue at length and the Government finally took measures in large public interests.


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: rbi

The RBI took its sweet time to act on Margadarsi issue. If HUF cannot collect such huge deposits, why just instructions not to collect the deposits or renew? why not freezing of the assets and otehr business operations? On the contrary, if they are allowed to collect deposits without any bar, why these restrictions on acceptance of deposits or their renewal? Will it not open an avenue for Margadarsi to approach the court and get a stay?

Is the CEntral Government and RBI are really serious in pursuing the case to its logical end or just provide eye-wash?

G.Prabhakara Sastry
Advocate


Posted by Jana Linga Raju
 
Sub: PUBLIC DEPOSITS

I fail to understand as to why Mr Ramoji Rao and his News Paper is not making any statements against RBI. According to Mr Ramoji Rao, the RBI Act and the provisions do not apply to him at all. Then why is he keeping silent on this. His silence clearly indicates that whatever his HUF did by accepting huge public deposits is against the Law

Posted by KL NARASIMHAM
 
Sub: Is it over now

I abolutely agree with Mr. Prabhakar Sastry on this. Is RBI going to wash its hands by merely asking to stop taking and renew of deposits. I am not that good at financial subjects. I hope this space is watched by many financial experts. Can anyone please tell mewhy this entire issue should not be treated as one of the prime scandals India has ever witnessed regarding finance sector?

Posted by kalyan kumar