New rules may cut depositor claims, treat interest as principal

Bengaluru: Interest payments received by depositors before their money is embezzled at a financial establishment may be treated as “principal repaid” while settling their claims, the government has said in a new set of rules.This provision could affect how much a depositor is ultimately recognised as being owed by a fraud-hit financial establishment.The government has published the Karnataka Protection of Interest of Depositors in Financial Establishments Rules, 2026. This replaces rules notified in 2006.Under the new rules, the government (or the competent authority) will call for additional documents from the claimants and prepare a list of depositors along with data on the amounts deposited with, and received from, the financial establishment… “treating the interest payments as principal repaid”.Traffic police announce diversions, parking restrictions in central Bengaluru for KPCC protest at Freedom Park todaySay, someone has deposited Rs 10 lakh and has received Rs 2 lakh as interest. In the event of a fraud, the government can invoke the new rules to say that the depositor’s outstanding claim is Rs 8 lakh, as Rs 2 lakh paid in interest will be treated as principal repaid.The rules do not specify the circumstances in which the provision is to be invoked.A senior official in the finance department told DH that the provision was inserted to prioritise depositors who had received no interest payments over those who had already received some money from the financial establishment. “In some cases, the realisation of attached assets will be insufficient to meet all claims. In such cases, interest paid will be treated as principal repaid,” the official said.The new rules also deal with the recovery framework, claim verification, money trails, asset valuation and auctions.The government can appoint data forensic auditors to trace money trail of the deposits “as early as possible, not exceeding six weeks”.Newspapers or channels that carry advertisements promoting a “fraudulent” scheme will come under the government’s radar.The government can ask the publication to disclose who funded the advertisement, and direct it to carry a “full and fair retraction” withdrawing the offer, promotion or inducement made earlier in any advertisement. “The retraction shall be published free of cost within two days from the date of the direction of the appropriate government,” the rules state.Finance Secretary (Fiscal Reforms) Dr Vishal R said the new rules took more than a year to prepare. “It prevents gaming of the system and ensures justice,” he said.

Source: Deccan Herald