The Reserve Bank on Friday banned chit fund companies from accepting deposit from the public with immediate effect. The central bank in Mumbai said in a notification. The MNBCs include chit fund companies which collect money in installments or lump sum by way of contribution from depositors and repay them in the form of prize money by auction.
The apex bank also asked the chit fund companies to repay the deposits to the public on maturity. In an important announcement, the RBI clarified that the maturing deposits would not be eligible for renewal.
The chit fund companies, however, can accept deposits from their shareholders, subject to the MNBC guidelines.
RBI said it was imposing a ban on collection of deposits from public by the chit fund companies “in the public interest and to regulate the credit system of the country to its advantage�.
The chit fund companies are regulated by the Miscellaneous Non-Banking Companies (Reserve Bank) Directions issued by the central bank in 1977.