Mumbai: Sahara India Financial Corp. Ltd, India’s largest residuary non-banking company, has decided to wind up deposits and pay all its customers by December, about four years before a deadline set by the central bank.
The company, which made the announcement in a public notice published as an advertisement in leading newspapers on Tuesday, didn’t give any reason for the move. An email sent to Abhijit Sarkar, head (corporate communications) at Sahara India Pariwar, did not elicit any response.
Analysts said this could be a precursor to Sahara seeking a banking licence so that it starts with a clean slate. The Reserve Bank of India (RBI) on Monday released a draft proposal to allow industrial houses and non-banking financial companies to set up banks.
Sahara India Financial, a so-called para-banking company, is part of the Sahara group, which is involved in a range of businesses, including entertainment, media and real estate. The group publishes a Hindi-language newspaper that competes in some markets with Hindustan, published by Hindustan Media Ventures Ltd, a unit of HT Media Ltd, which also publishes Mint.
In 2008, the banking regulator asked Sahara India Financial not to accept fresh deposits and wind up the Rs 20,000 crore of public deposits it had in seven years. It also banned the company from accepting fresh deposits maturing beyond June 2011.
RBI had directed Sahara India Financial to repay the deposits as and when they mature and bring down the aggregate liability to depositors to zero on or before 30 June 2015, after it found irregularities in the functioning of the company.
As per the order, by 30 June of this year, the firm should not have had a deposit liability of more than Rs 9,000 crore.
Sahara India Financial’s advance payment notice said the company accepted Rs 73,000 crore of deposits till June 2011, but didn’t say anything about outstanding deposits. The company will have no liability following the payment, it said.
It is not known how the company plans to mobilize funds for the advance payment.
In the past, Sahara India Financial had expressed its interest in entering the banking sector. Sushanto Roy, chief executive officer of Sahara Prime City Ltd, a Sahara group firm, said in an interview to Business India magazine in December 2009, that consultant Ernst and Young had been appointed to examine the options for converting Sahara India Financial into a bank. “We are working on the plan. We have to see what shape it takes,” Roy had said at the time.
The draft guidelines issued by RBI on Monday may make it difficult for the group to realize this ambition.
The central bank has listed diversified ownership, and “sound credentials and integrity that have a successful track record for at least 10 years in running their businesses” as among the key norms for promoters of banks. The “sound credentials” and “integrity” will also have to be supported by other regulators and agencies.
“RBI may seek feedback on applicants on these aspects from other regulators, and enforcement and investigative agencies like the income tax (department), the Central Bureau of Investigation, the Enforcement Directorate, etc. as appropriate,” the central bank said in its draft guidelines.
The norms also say that any group that has at least 10% exposure to real estate or the broking business in terms of income or assets will not be considered.
Analysts are not sure how much of Sahara’s total income comes from such activities as the group’s financials are not available.
It has at least three unlisted real estate firms—Sahara Prime City Ltd, Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Sahara India Real Estate and Sahara Housing Investment are currently fighting a case in the Securities Appellate Tribunal against an order of the Securities and Exchange Board of India (Sebi) that has barred them from raising public money in any manner, citing violations of capital-raising norms and certain sections of the Companies Act.
A 4 June 2008 RBI release had said Sahara “continuously” violated investment norms; payment of prescribed minimum rate of interest to depositors; asset-liability management guidelines; “know your customer” norms for opening deposits, and failed to intimate depositors when their deposits matured.
Following this, Sahara India published a “fact sheet” with some financial details of the company as an advertisement in various newspapers. The fact sheet said that Sahara India Financial had mobilized Rs 59,076.26 crore of deposits (including interest) since its inception in 1987 and paid back its depositors Rs 41,563.06 crore (including interest) as of 30 June 2008. The aggregate liability to depositors (including interest) was Rs 17,513.20 crore.
Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with Sebi. Mint is contesting the case.