Unregulated deposit schemes, and the collector at your door

Writing about daily deposits usually treats an unregistered collector as a risk to weigh. In July 2019 Parliament passed a Bill aimed squarely at that situation. This guide sets out what the Bill says as it has been summarised, how it meets a daily collection round, and the limits of what we could verify.

What the Bill is aimed at

PRS Legislative Research, an independent research group that tracks Parliament, records that the Banning of Unregulated Deposit Schemes Bill, 2019 was introduced in the Lok Sabha on 19 July 2019, passed there on 24 July, and passed by the Rajya Sabha on 29 July.

On PRS's summary, the Bill prohibits deposit schemes run for business purposes without registration from an appropriate regulator. It describes a deposit broadly, as money received "with a promise to be returned with or without interest", which is wide enough to include a daily collection round. PRS lists nine regulators, among them the Reserve Bank, SEBI, the Ministry of Corporate Affairs and state governments, and notes that the Bill amends the Multi-State Co-operative Societies Act, 2002.

The penalties PRS summarises are custodial:

PRS also describes a Competent Authority, an officer of Secretary rank or above, who may provisionally attach assets and apply to a Designated Court to make the attachment permanent so assets can be sold to repay depositors.

How this meets a collection round

Three situations look identical at the door.

A co-operative bank with a banking licence. Licensed by the Reserve Bank. If it appears on the DICGC insured-bank register, deposit insurance of up to ₹5,00,000 per depositor applies.

A registered co-operative society. Registered with a state Registrar, or with the Central Registrar if it works across states. It does not appear on the DICGC register, because the DICGC states that primary co-operative societies are not insured by it.

Neither. No licence and no registration, but daily cash collected and a passbook issued. This is the situation the Bill is aimed at.

The middle case is the one that catches people. Finding that a society is properly registered feels like a clean answer and is only half of one: the money is still outside deposit insurance if the society fails. Our guide to the co-operative credit structure sets out why the banking licence, and nothing else, is what moves deposit insurance.

What to do

Ask for the licence or the registration certificate, and the number on it. Verify the number with the authority that issued it rather than accepting a photocopy at the door. A passbook, a printed receipt, a uniform and a route that has run for years are all consistent with an entity that was never registered.

If you cannot get a straight answer, stop paying before you do anything else. The cases in our guide on collection fraud show how much easier it is to stop handing over money than to recover it. Our bank-or-society checklist turns this into questions to ask.

What we could not establish

This is law, and half-verified law is worse than none, so the limits are stated plainly.

• We have not read the enacted Act. Our source is PRS's summary of the Bill. India Code returned an access error, and the copies of the Act we tried were missing.
• We have not verified assent or commencement. The PRS page records passage by both Houses; it does not show presidential assent or a commencement date.
• Section numbers, exemptions, definitions and any later amendments must be checked against the enacted text before anyone relies on them.
• How actively it is enforced against small deposit collection, as opposed to large investment frauds.
• Whether any state has made rules that change how it applies to credit co-operatives running daily collection.

Nothing here is legal advice. It describes a Bill at the level of what it is aimed at and what it provides, as summarised, so that a depositor knows the question exists.