Sahara India Financial Corporation has called back its investments in various group companies, in an attempt to comply with the Reserve Bank of India's regulations on where it can invest money collected from the public.
As a result, over 100 per cent of its deposit portfolio is now invested in instruments stipulated by the RBI. These are government securities, deposits in other banks and corporate bonds with "Double A+" (AA+) and above rating.
This means that Sahara has complied with the RBI's prudential norms laid down for residuary non-banking finance companies, ahead of the deadline of April 2007.
A high-level RBI audit team recently concluded a 45-day on-site inspection of the country's largest RNBC. Consulting firm KPMG had conducted an audit of the company some time back at the instance of the banking regulator.
The audit report of the consulting firm as well as that of the RBI have been kept under wraps.
A company spokesperson said, "Sahara India Financial Corporation Ltd is a residuary non-banking company under the comprehensive regulation and supervision of the RBI. The company has been complying with the regulations/directions of the RBI on a regular basis."
As a part of its supervision, the RBI carries out periodical inspection of the company and observations thereof are suitably addressed by the company from time to time.
The RBI has progressively tightened the investment norms of RNBCs. It is rationalising the pattern of direct investments by RNBCs to reduce the overall systemic risk in the financial sector.
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 the 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 had to be put into directed investments.
In 2005-06, the discretionary investment quantum was reduced to 10 per cent. From the new financial year, this has been reduced further to 5 per cent, and is to be eliminated in April 2007.
The RBI has also tightened the norms by making it clear that balances kept in current accounts at the end of each quarter with banks will not be considered as part of directed lending.
This will further reduce the RNBCs' flexibility in investments. It has also disallowed treatment of tax refunds as directed investment. The twin measures will take away the flexibility that the RNBCs have been enjoying in investment policies.
For instance, the 2004-05 annual report of Sahara India Financial Corporation has shown Rs 922.88 crore (Rs 923 billion) as tax refund as treated the amount as directed investment, permitted by the RBI. It will have to invest this amount in accordance with the RBI norms.Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group
