Mumbai: Sahara India Financial Corp. Ltd, the country’s largest residuary non-banking finance company (RNBC), is doubling its authorized share capital to Rs1,200 crore from Rs600 crore in an attempt to meet the investment norms for such companies instituted by the country’s banking regulator.
The firm also plans to enter new businesses such as depository service, portfolio management, securities, insurance, asset management and asset reconstruction, among others, and reposition itself as full service financial intermediary.
According to Sahara India’s filings with the Registrar of Companies, the objective behind the fresh capital infusion is “to cover the gap in directed investments” in accordance with norms of the Reserve Bank of India (RBI).
An RNBC is required to invest all its deposits in government bonds, deposits of other commercial banks and corporate bonds with ratings of double A+ (AA+), indicating high safety.
Sahara India received shareholder approval for fresh capital infusion in May, a month before RBI set a three-year sunset window on it, allowing the firm to accept fresh deposits maturing till June 2011 and asked it to reduce deposit liability to zero on or before 30 June 2015.
RBI has done this because of Sahara India’s alleged violation of investment norms.
With the restriction on deposit mobilization, Sahara India’s deposit base will gradually come down but its investments in approved securities will continue to be calculated with a six-month lag, in keeping with investment norms for RNBCs. In other words, it will have to invest more than its deposits in approved securities. Fresh capital will come in handy for this purpose.
At an extraordinary general meeting on 10 May, Sahara India passed a resolution to issue fresh “compulsorily fully convertible non-cumulative preference” shares to its existing promoters—Subrata Roy, O.P. Srivastava and J.B. Roy. The allotment of preference shares will be completed in 12 months.
The holders of preference shares get fixed dividends on the profits of the firm but do not enjoy voting rights like ordinary shareholders. Preference shares are similar to debt instruments but are counted along with ordinary shares as equity of the firm.
On 24 June, Sahara India amended its memorandum of association (a sort of legal document on its purpose) to include several new businesses in an effort to reposition itself as a full-service non-banking firm. Besides promoting different types of saving schemes, the company plans to deal in financial and capital market products, launch securitization and asset reconstruction businesses, trade in derivatives, swaps and foreign currencies, and enter insurance and asset management. Incidentally, Sahara India’s affiliates are already in the life insurance and asset management businesses.
Abhijet Sarckar, head of corporate communications, Sahara India Financial, declined comment on the development. In an email sent to Mint, he said: “As per the directions of RBI, the company has already submitted its business plans to the regulator. It does not wish to make any comment on the same at this point of time.”
RBI had on 4 June banned Sahara from accepting public deposits from any person in any form—by way of fresh deposits, or renewal of the deposits, or otherwise—with immediate effect.
However, the Lucknow bench of the Allahabad high court stayed the order the next day. The banking regulator then moved the Supreme Court to lift the stay. The apex court on 9 June had directed the regulator to hear Sahara India once again before arriving at a final decision.
In papers filed with the Supreme Court, the central bank claimed Sahara India failed to invest $280 million (about Rs1,225 crore) of its $4.3 billion in deposits in the mandated low-risk bonds.
RBI also accused Sahara of slashing depositors’ interest payments whenever they fall behind on their instalments (many of the firm’s depositors invest money in instalments).
After several meetings between the central bank and Sahara India executives, RBI, on 17 June, passed a fresh order allowing Sahara to accept fresh deposits maturing until 30 June 2011. The regulator had also asked the firm to reconstitute its board with 50% of the independent directors being nominated by RBI.
On 20 July, Sahara India appointed chief executive of Indian Banks Association H.N. Sinor; former president of the Institute of Chartered Accountants of India T.N. Manorahan; and A.K.D. Jadhav, a former IAS officer from the Maharashtra cadre, as independent directors.
Sahara India is part of the Subrata Roy-led Sahara group that has interests in finance, entertainment, real estate and media. Sahara group also publishes a Hindi-language paper that competes in some markets with Hindustan, published by HT Media Ltd, which also publishes Mint.
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