Asia Bizz: India’s gold finance company Muthoot Fincorp has recently received a ban by the Reserve Bank of India (RBI) from taking deposits from public. This is another blow to the industry where the regulatory attention is intensifying after increased growth has posed a risk to the system ability.
In a statement, Central bank said that the bank that lends money against gold through an associate from Muthoot Estate Investments and which takes deposits at the branches of the registered finance company, is a violation against the law. The statement added that the acceptance of deposits from the public by Muthoot Estate Investments, which is actually a partnership firm, is prohibited.
The statement also issued a warning to the public saying that the acceptance of deposits by the company or Muthoot Estate Investments is punishable with imprisonment and also those who deposit money with the company or Muthoot Estate Investments may do so at their own risk. The companies which lend money against gold have suddenly becoming bigger with implications for millions of investors and borrowers if they fail.
The scheme had drawn many investors including private equity funds. Such companies borrow funds from banks and even sell bonds publicly to lend. This is the reason Central bank has been tightening regulations on them .