Allowing NRIs subscribe to the chit funds, without limit, on non-repatriation basis, is a positive decision by the government and this will give a major boost to Indian chit fund business
By Sai Nikesh D
In a move towards attracting more foreign funds into the country, Reserve Bank of India (RBI) has allowed the Non-Resident Indians (NRIs) to make investments in chit funds without limit and on a non-repatriation basis.
Welcoming the move, T S Sivaramakrishnan, General Secretary, All India Association of Chit Funds (AIACF), said that the government’s decision allowing NRIs subscribe to the chit funds, without limit, on non-repatriation basis, is a positive one and this will give a major boost to Indian chit fund business.
However, investments cannot be expected from foreigners other than NRIs, he added. We made many representations to the government in this regard. Finally, Indian government came up with a positive decision, he said and added, ‘there is no adequate support from the government, which is one of the key challenges being faced by chit funds business in India’.
According to him, current annual turnover of the chit fund business in India stands at around Rs 30,000-35,000 crore. Meanwhile, D Ramachandra, past president, AIACF and current chairman of Panchajanya Chits Pvt.Ltd., raised concerns over various challenges being faced by the chit fund businesses in India.
He said, “While, approximately 2000 chit fund operators (mostly from South India) are operating legally in the country generating around Rs 2000-2500 crore business, illegal operators across the country are generating around Rs 37,000- Rs 40,000 crore chit fund business, thus, taking over 90% of country’s chit fund business.”
For example, in the case of Karnataka, while 869 chit operators are operating legally, the number of illegal operators stands at whopping 80,000. The situation is similar in other states like Tamilnadu, Kerala, Andhra Pradesh, who are among the major contributors to chit fund business in India, he noted.
“Apart from this, one of the key challenges is the inclusion of chit fund sector under service tax liability. While chit fund sector could witness just 5% annual profit, how can it be capable of paying 14% tax as being asked by the government, which is totally unbearable,” he noted.
Allowing of foreign investments into the Indian sector will be a major boost and will empower the chit funds business in the country and even in this regard, government was unresponsive even after making many representations in the last few years, he added.
According to RBI circular dated RBI/2014-15/636 A. P. (DIR Series) Circular No.107 on ‘Subscription to chit funds by Non-Resident Indian on non-repatriation basis’, it has been decided to permit NRIs to subscribe to the chit funds, subject to few conditions.
The Registrar of Chits or an officer authorised by the State Government in accordance with the provisions of the Chit Fund Act in consultation with the State Government concerned, may permit any chit fund to accept subscription from NRI on non-repatriation basis. The subscription to the chit funds shall be brought in through normal banking channel, including through an account maintained with a bank in India.
This article was published in The Dollar Business July 27, 2015