Fintotal News Analysis | Muthoot Fincorp and Mannapuram Finance Banned From Taking Deposits
Muthoot Fincorp and Mannapuram Finance Banned From Taking Deposits
Ruby Jacob, 22 Aug 2013

Muthoot Fincorp and Mannapuram Finance were forbidden by RBI early in 2012 to accept deposits from public. The Ministry of Finance has clarified this again.

Both Muthoot Fincorp and Mannapuram Finance are non deposit taking NBFCs. RBI, the regulator of banks and financial institutions permits only those non banking finance companies (NBFCs) registered as deposit taking ones to collect deposit from the public. There are some 250 odd NBFCs accepting deposits from public, having RBI's permission.

Prior to RBI's ban Muthoot Fincorp would allow its staff and premises for collecting deposits for Muthoot Estate Investment, an associated company from the public visiting its branches. Similarly Mannapuram Agro Farms, a sole proprietary concern of Mannapuram Finance's chairman was accepting public deposits in branches of the latter. Mannapuram Agro Farms was a deposit taking NBFC until March 2011. Both these companies' deposit taking was in violation of RBI rules.

RBI's ban last year on both these gold loan companies were widely publicized through newspaper ads and other media. Interest rate on company deposits are 1.5-3% higher than bank FDs but investors should understand that risk carried by these are also higher than in case of FDs.

Whether applying physically or online for any sort of financial instrument, make it a practice to check who is the issuer is. If it is an unfamiliar one go back and check if it has got regulatory permission to do the activity. Deposit taking NBFCs should have RBI's license, other corporate deposits come under Companies Act. Rating assigned to the deposit should also be checked. Corporate deposit rating is an indicator of its default risk.

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