The new unregulated deposit ordinance 2019 protects the rights of depositors and at the same time penalises the unregistered deposit takers. The new ordinance will go a long way in channelising the deposits into formal system, choking the credit lines to speculative businesses, creating strong database of depositors, resulting in higher taxes and lesser frauds, thus contributing to overall economic growth. Take a look:
Channelising deposits into formal system
The current bank deposit stands at Rs 117 lakh crore. These deposits are growing at a single digit every year. While there was a surge of deposits post demonetisation, the deposit growth is back to pre-demonetisation level. The current ban on unregulated deposits will encourage people to move to formal systems like banks, non-banking finance companies (NBFCs), collective investment schemes and other institutions regulated by the government. There are new players like peer-to-peer lenders (P2P), which will gain big time. Similarly, the deposit taking NBFCs or small finance banks will also get benefited in the longer run.
Choke the credit lines to speculative businesses
The unregulated deposit market was characterised by higher returns. The money so raised generally used to go to areas where the interest or returns were equally high. In fact, these entities used to lure people with higher interest rates - something like doubling the income in three years. The money so raised used to flow into capital market, commodity market, real estate, and gold trading etc. This ordinance will choke the credit line to these speculative sectors, which is a good move.
Strong database of depositors
The move will help in creating a database of depositors in the country. Currently, there are different schemes apart from the RBI-licensed ones that allow people to raise deposit kind of money. There are cooperative banks, chit funds and collective investment schemes. The government's plan is to create a repository of depositors in the country.
More taxes, better regulated deposit universe
Higher deposits into the formal system mean higher taxes. There are people who have deposits or surplus money, but are not part of the tax system because they rely on informal sources. These kinds of depositors will be tracked better for paying taxes or disclosing their income. This will also result into a better-regulated deposits system, which will reduce Saradha scam kind of frauds that involved funds to the tune of Rs 30,000 crore raised from public. In fact, most of these scams hit the backbone of poor depositors in smaller cities and towns.
Unorganised economy to be part of organised economy
There is a huge unorganised economy in India, which is not a part of the country's gross domestic product (GDP). This move will go a long way in putting a part of the unorganised activity into the organised sector. The demonetisation exercise was meant to do that, but the cash is once again back in the system. There are similar expectations from the unregulated deposit ordinance.