The Reserve Bank of India (RBI) has pulled up Manappuram Finance, the second-largest gold loan company, for unlawfully accepting deposits from the public.

RBI said on Monday that Manappuram Finance, through another promoter-owned firm, Manappuram Agro Farms, had been raising deposits from the public through its branches in Kerala. Manappuram Agro Farms is a sole proprietary concern of VP Nandakumar, the executive chairman of Manappuram Finance.

RBI pointed out that “acceptance of deposits either by Manappuram Finance or by Manappuram Agro Farms is punishable with imprisonment.”

Contacted by Financial Chronicle, Manappuram managing director I Unnikrishnan said customers put deposits with Manappuram Agro on their own volition. It was an ‘error of judgment’, he said.

“We were a deposit-taking NBFC (non-banking financial company) till March 2011 and we had unclaimed public deposits of about Rs 2 crore which we were refunding to customers through our branches. In the process some of the amount was re-deposited in Manappuram Agro Farms on the customer’s own volition,” Unnnikrishnan said.

Manappuram Finance was earlier known as Manappuram General Finance and Leasing and was a deposit-taking NBFC till March 22, 2011. Thereafter it became a non-deposit taking NBFC.

“RBI looked at our records and found out that it was an error of judgement and asked us to stop accepting deposits. We are in the process of refunding the money to customers,” Unnikrishnan added.

Financial Chronicle asked him how much money had thus been mobilised by Manappuram Agro Farms. But his phone line got disconnected abruptly and he was not reachable subsequently.

Manappuram Agro Farms is not even a registered company. “In terms of Section 45-S of the RBI Act, acceptance of deposits from the public by (the company), which is an unincorporated body, is also prohibited,” said RBI.

According to a former official of the company, customers were solicited to place deposits with Manappuram Agro Farms, offering 12.5 per cent interest, against 11.5 per cent that Manappuram Finance offered earlier.

As of December, Manappuram Finance had about Rs 12,358 crore worth of assets under management.