Wednesday, 31 July 2013 00:00
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In the past, the public has lost billions by investing in unregistered finance companies which offered exorbitant interest rates. Now investments in registered finance companies are encouraged as people are confident that corrective action would be taken by the Central Bank at the time of distress. However, people should not imagine that their deposits, together with interest, would be redeemed early or even within six months if the delay in payment is reported to the Central Bank. I quote below the following information:
a) Guarantee for Rs. 200,000
It is true that w.e.f 1.1.2013 total deposits to the limit of Rs. 200,000 per person is guaranteed by the insurance scheme, some finance companies in their documents do not mention about this limit of Rs. 200,000 so that public would believe that entire deposits are guaranteed. This is a clear violation of the Central Bank requirement and action must be taken against misleading finance companies early.
b) Deposits to the limit of Rs. 200,000 would be paid only when the Central Bank instructs the suspension of the activities of finance companies or at the time of liquidation. Immediate payment is not possible. Please note this point.
c) When delay in payment is reported, the Central Bank will appoint a managing agent who will attempt to rectify the position. Payment later maybe made in instalments.
d)Fixed deposits are not transferable – these are not quoted in the share market as well.
e) Banks do not accept pledge of fixed deposits for granting loans (few exceptions may be possible).
Therefore, at the time of urgency, fixed deposits cannot always be redeemed after the date of maturity. Settlements would be made even after your demise in respect of insolvent companies.
In the cost of Treasury bills, people do not face these types of difficulty. Further, the interest is tax free for individuals. Therefore, public should be careful when allocating funds on Treasury bills, bonds savings deposits, saving certificate and fixed deposits in finance companies.
I have deposited Rs. 400,000 in a registered finance company which is a public quoted limited liability company as well. I have not received interest or part of the deposit matured on 15.12.2012 to date.
I am not blaming the Central Bank for my mistake, however, I feel that public would be more careful after reading this article.
S.R. Balachandran BSc., FCA, FCMA
