Kolkata: In the wake of the collapse of the Saradha Group that has threatened to wipe out all other firms that used to collect public deposits in the name of advances for land sales or hotel bookings, many companies are seeking registration as cooperative societies either from the Centre or from the West Bengal government to stay afloat, under different names and identities.

Though they would have to cope with some degree of regulatory oversight, securing registration as cooperative societies will give these groups a new lease of life because they will again be able to collect deposits employing the same people who worked for them as field agents. With smart accounting, they could channel this money into their firms that are now facing closure and repay depositors, experts said.

Financial enterprises may be re-inventing themselves so they can avoid Saradha’s fate, according to government officials.

“We are suspicious that some of the pending applications are from groups that have been raising money through illegitimate schemes," said D.N. Thakur, an officer in the Union ministry of agriculture, responsible for granting registration to cooperative societies.

The I-Core Group, which initially asked its field agents to lend money to repay depositors, has recently indicated that it will launch new deposit schemes through a cooperative society that is being set up. Its management couldn’t be contacted despite several attempts.

Many more may have applied for such licences in the past few months, said Utpal Kumar Bhattacharya, additional registrar in the department that overseas such institutions.

“We couldn’t have got into this business if Saradha didn’t collapse," said Raj Kumar Roy, vice-chairman of Universal Multi State Credit Co-operative Society Ltd.

Launched in January, Universal is controlled by Kolkata-based Pincon Group, which produces alcoholic beverages. Having worked at Peerless General Finance and Investment Co. Ltd—a pioneer in small savings collection—and a public sector bank before, Roy knows the business of deposit mobilization like the back of his hand.

He was only waiting for the opportune moment to arrive. His previous attempts, which included the takeover of a non-banking financial company (NBFC), weren’t so successful.

In only a few months of operation, Universal has managed to field some 10,000 agents to collect deposits from people’s doorsteps and is looking to recruit 65,000 more within a year, said Roy. And unlike predecessors such as the Saradha Group, everything about Universal is legitimate, he said.

It has a valid licence to collect money from members, or people who agree to join the cooperative society by starting a deposit, and to give loans. It is a different matter that he fears delinquency could be as high as 50% in view of the “current economic scenario". But Roy, who has hired retired bank officials as advisers, is unfazed.

The Pincon Group took over LRN Finance Ltd—a non-deposit-taking NBFC from a Chennai-based firm in 2011. The company has issued two secured debentures of 41 crore in total, Roy said.

Bengal Pincon Housing Infrastructure Ltd, a joint venture between Pincon and the West Bengal government, also had two fixed deposit schemes that it has now withdrawn, Roy said.

Deposits will soon start to be accepted under Universal’s schemes, Roy said. However, according to an agent of Universal, who declined to be named, the cooperative has already started raising money through its different schemes since 3 May.

According to Roy, Universal has three types of schemes. The first is a monthly income scheme at an annual interest rate of 10.5-15.5% for three-seven years. The second is a recurring deposit scheme at 7-13% for one-seven years. In this case, daily deposits are allowed, Roy said.

The third scheme is a fixed-deposit one at an interest of 11-17% for 3-10 years.

The society also allows loans against fixed deposits of more than three years to the extent of 60% of the deposit amount.

Universal offers educational and personal loans, against collateral such as tractors, land and gold. It gives loans at 60% of the mortgage value.

The society will allow a deposit to be withdrawn after one year and pay interest at the prevailing bank savings rate.

Lending rates for different loans vary between 18% and 24%, Roy said.

Encouraged by its initial success, Universal, which operates in West Bengal and Uttar Pradesh, has applied for government clearance to enter states such as Assam, Bihar, Jharkhand, Maharashtra, Chhattisgarh and Tripura.

But the Securities and Exchange Board of India (Sebi)—the stock market regulator—is wary about Universal’s expansion. Earlier this month, Sebi wrote to the department of the West Bengal government that oversees such cooperative societies asking it to take a close look at its operations.

Sebi has no jurisdiction, said Roy, adding that a cooperative society such as Universal is regulated by an arm of the Union ministry of agriculture, which also grants registration.

It is true that the state government doesn’t have much say in the affairs of cooperative societies such as Universal that have obtained registration from the Centre.

But earlier this month, the West Bengal government wrote to the Centre seeking greater authority to oversee such cooperative societies, said another official of the West Bengal cooperatives department, who didn’t want to be named.

Many in the West Bengal cooperatives department fear discredited financial enterprises are trying to re-invent themselves by turning into cooperative societies.

Till the end of February, there were 796 cooperative societies registered with the Centre, of which 300 were less than a year old. Already there are 170 more pending applications, shows data available with the Union ministry of agriculture. A 2002 central Act says such applications, unless dismissed within four months, can be deemed as cleared.

The list of pending applications with the Centre includes several known names, but it is impossible to determine the people behind such enterprises. Many could be through proxies to avoid the detection of their history. Nearly half the pending applications are from West Bengal.

The Centre will soon write to state governments seeking help in tracing the background of those that have applied for registration, according to Thakur of the agriculture ministry.

The amount of money at stake is huge, show reports available with the West Bengal government. A study conducted a few years ago by the state government had shown that at the end of 2009-10, 2,237 such societies had collectively raised over 2.2 trillion of people’s savings—more than the state’s current outstanding debt stock.

Only about 76% of this amount was deposited with banks, and the rest is assumed to have been lent to members. Compared with banks, delinquency is high—on average around 20%, going up to even 50% in extreme cases, of the total amount lent—showed the report cited above.

Shifting focus from raising money from the public in the form of deposits to a cooperative structure for such companies is not new. The Sahara group, which was directed by the Reserve Bank of India to close down its deposit-taking activities as a residuary non-banking company within a certain period, first raised money through optionally fully convertible debentures, and later, when Sebi banned it from doing so, it formed cooperative societies.

Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s disputes with Sebi. Mint is contesting the case.

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