Sahara India Financial Corporation is required to call back its investments in various group companies in the first quarter (April-June) of the financial year 2006-07, as a high-level audit team of the Reserve Bank of India is conducting an on-site inspection of the country's largest residuary non-banking finance company.
Sahara India Financial Corporation will not have any discretion in regard to its investments of public deposits in the April-June quarter.
In other words, its entire deposit portfolio will have to be invested in instruments stipulated by the RBI. They are government securities, deposits of other banks and corporate bonds with double-A+ (AA+) and above rating.
As a result of this, Sahara India Financial Corporation will have to call back its investments in various projects.
"This is one of the reasons why it sold off its airline. It will not be able to make any fresh investment in any of its ventures from the public deposits in the RNBC arm," said a source close to the development.
Sahara India Financial Corporation's deposit base is worth around Rs 12,000 crore (Rs 120 billion). It declined to comment on the development.
The RBI has progressively tightened investment norms of RNBCs. The RBI is rationalising the pattern of direct investments by RNBCs to reduce the overall systemic risk in the financial sector.
"It is considered necessary in public interest as well as in the interest of RNBCs to modify and rationalise the directed and discretionary investments by them," said the sources.
Besides Sahara India Financial Corporation, there are two more RNBCs in the country which are also subject to the same set of regulations. One of them is Kolkata-based Peerless General Finance and Investment Company.
In 2004-05, RNBCs could make use of 20 per cent of their aggregate liabilities to depositors for discretionary investments while the rest was directed investment. In 2005-06, the discretionary investment quantum was reduced to 10 per cent and from the next financial year beginning April, there will not be any discretionary investment for RNBCs.
"Sahara India Financial Corporation has made representations to the RBI for relaxation of this norm. However, the regulator is not inclined to change its stance. The Sahara group may go for a restructuring following this," said sources.
A six-member RBI inspection team has been camping at the Sahara offices since the beginning of January, conducting a special inspection. This follows a special audit by KPMG last year at the instance of the RBI.
The audit report of the consulting firm, which has been kept under the wraps by the RBI, has reportedly pointed out discrepancies in the books of the RNBC.
The RBI team is expected to complete its on-site inspection by the end of this month.
In 2003-04, Sahara India Financial Corporation had liability towards depositors to the tune of Rs 8,803.56 crore (Rs 88.04 billion) and assets of Rs 9,512 crore (Rs 95.12 billion). With a total income of Rs 984.36 crore (Rs 9.84 billion), it posted a net profit of Rs 44.73 crore (Rs 447 million) in 2003-04.
Its 2003-04 annual report shows long-term investments in Sahara India Mass Communication Ltd, Sahara Asset Management Company Ltd, Sahara Airlines, Sahara India Corporation Ltd, Sahara Hospitality Ltd, Sahara India International Corporation Ltd, Sahara India Mass Media Communication Ltd, Sahara India Medical Institute Ltd, Sahara Sanchar Ltd and Sahara India Life Insurance Company Ltd.
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