KOLKATA (AFP) - Police said on Tuesday they had arrested the head of a privately run Indian savings company that collapsed, leaving tens of thousands of its investors penniless.

Police in the West Bengal state capital Kolkata said Saradha group chairman Sudipta Sen and two of his business associates were taken into custody in the northern Indian state of Kashmir where they had fled.

The collapse last month of the so-called chit fund which offered returns of 40 per cent and more has triggered massive street protests in eastern India and three investors have committed suicide, police said.

Ms Sova Sengupta, a depositor, Tuesday wept over the financial losses she has suffered as a result of the failure of the firm.

"I deposited 100,000 rupees (S$2,286) for better returns. I have lost all my savings," the 75-year-old Kolkata depositor said.

West Bengal chief minister Mamata Banerjee on Monday turned down calls for a state-backed bailout to help affected investors, many of whom say they have lost their life's savings in the company's collapse.

"What has gone, has gone," Ms Banerjee said.

She promised to introduce a new law to crack down on financial firms engaging in fraudulent practices.

Indian media reports say more than 100,000 depositors were hit by the group's collapse.

The Saradha group, headquartered in Kolkata, was believed to have been worth around US$3.3 billion (S$4 billion) from money collected from its depositors, according to Indian media reports.

The group had also diversified into sectors such as construction, tourism, hospitality, agriculture and media.

Ongoing protests in West Bengal spilled on Tuesday into the northeastern state of Assam where depositors attacked offices of the group in the state's largest city Guwahati and elsewhere in Assam, the Press Trust of India news agency said.