What are the restrictions imposed by the Reserve Bank of India on Chit Fund business ?

Restrictions on Chit Fund Business by RBI The chit fund business is governed by the Chit Funds Act, 1982, which is a Central Act administered by State Governments. The Chit Fund Companies registered under the Chit Fund Act can legally carry on chit fund business. Chit Funds activity involves contributions by members in installments by way of subscription to the Chit, and by rotation, each member of the Chit receives the chit amount. As per section 45I(bb) of the RBI Act, any subscription to Chit is specifically excluded from the definition of deposit and cannot be termed as a deposit. While Chit fund Companies registered with respective State Governments may collect subscriptions to Chit as above, they are prohibited by RBI from accepting deposits. The Chit Funds Act, 1982 provides that nothing in section 46 shall be deemed to affect the power of the Reserve Bank to inspect the books and records of any foreman under the provisions of section 45N of the Reserve Bank of India Act, 1934. The Reserve Bank may, if it considers necessary, forward a copy of its report or of any part of its report on the inspection of the books and records of a foreman to the foreman for taking necessary action.