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Archive for Microsavings

Sahara permitted to accept microsavings with conditions

RBI  has passed a fresh  order containing the following directions to SIFCL:
“(i) SIFCL is hereby directed not to accept any new  deposit which matures beyond June 30, 2011 and  to  stop accepting  installments of existing deposit accounts also with effect from that date.  The Aggregate Liability to Depositors (ALD) will not exceed Rs.15,000 crore (rounded off) as of June 30, 2009, Rs.12,600 crore (rounded off)  as of June  30, 2010 and Rs.9,000 crore (rounded off) as of June 30, 2011. 
(ii) SIFCL shall repay the deposits as and when they mature and bring the ALD to zero on or before June 30, 2015.
(iii) SIFCL shall not treat non-payment of installments under any running daily  deposit  or other recurring deposit schemes by depositors after June 30, 2011, as a default by depositor and SIFCL shall be liable to pay the agreed rate of interest on the amounts actually held by it for the entire term of the deposit as if there was no default.
(iv) SIFCL shall continue to comply with the requirements of directed investments under paragraph 6 of RNBC Directions with respect to its ALD.

(v) SIFCL shall ensure 100% compliance with KYC norms for all new deposits.

(vi) SIFCL shall subject to (i) (ii) (iii) above,  strictly comply with the requirements of all the applicable provisions of the RBI Act, the directions, guidelines, instructions and circulars issued by RBI there-under from time to time until such time as all the deposits are repaid with interest in full. For repaying the depositors, SIFCL shall first apply its income and investments other than the investments it is required to maintain under paragraph 6 of RNBC Directions.

(vii) SIFCL shall, without prejudice to the above, be entitled to carry on its other business activities in accordance with law.

(viii) SIFCL shall submit a comprehensive business plan before the close of business on 16th August 2008.”

RBI has incorporated in its order, the offer made during the personal hearing by the Managing Worker & Chairman of SIFCL and the senior executives of SIFCL. Keeping in view quality corporate governance, they offered to  (a) reconstitute the Board of Directors of SIFCL within a period of thirty days from June 16, 2008 so that  the Board shall consist of 50% of such independent directors as are acceptable to Reserve Bank of India; (b) get the appointment of these  independent directors  ratified at the ensuing Annual General Meeting of the company and to continue the said arrangement till such time as all depositors are repaid in full;  and (c) appoint  statutory auditors from  the panel of auditors suggested by Reserve Bank of India at the ensuing Annual General Meeting of the company envisaged by August 31, 2008 and  to continue to appoint statutory auditors each year from the panel suggested by Reserve Bank of India till all depositors are repaid in full. 








World’s Largest Microsavings Companies in India – Sahara / Peerless / Disari ????

 Sahara India Financial Corporation (SIFCL) is the largest deposit-taking non-banking finance company  (Deposit Base of Rs 18,000 Crores / 40 Million Clients) in the country. Apart from Sahara, there are  two other RNBCs operating in India –  the Kolkata-based Peerless General Finance and Investment Company and Disari India Savings and Credit Corporation.

  Sahara India Financial Corporation (SIFCL), has been barred by the Reserve Bank of India from accepting public deposits with immediate effect.

The company has also been told to repay the existing deposits as and when they mature.

SIFCL, part of the highly influential Sahara group which has interests in mutual funds, insurance, real estate and media, has been found guilty of violating various regulatory norms.

According to a statement issued by RBI, on Wednesday, the violations include non-payment of minimum rate of interest prescribed for RNBCs (residuary non-banking company), non-maintenance of stipulated asset-liability match, violation of Know Your Customer norms for opening deposit accounts, not informing depositors in time about the maturity of their deposits, and non-repayment of deposits on maturity.

Currently, SIFCL, a residuary NBFC, has a huge deposit base of close to Rs 18,000 crore.

RBI has directed SIFCL to repay the deposits as and when they mature and not to treat non-payment of instalments under any running daily deposit or recurring deposit schemes by depositors as a default.

The company is also liable to pay the agreed rate of interest on the amounts actually held by it for the entire term of the deposit as if there was no default, RBI said.

RBI had earlier issued a show-cause notice to SIFCL on violation of various regulations. However, despite the warning, the company continued to violate the guidelines, RBI said.

An RNBC is a non-banking financial company that is wholly dependent on public deposits. Other NBFCs depend on market borrowings and bank finance also.

According to information from the company’s Web site, SIFCL, set up in 1987, has a depositor base of 4.25 core and 1,508 service centres.


RBI moves to stop NBFCs` deposit mop-up / microsavings ?

The Reserve Bank of India (RBI) is slowly phasing out deposit-taking, non-banking finance companies (D-NBFCs) garnering public deposits.
 While RBI Deputy Governor V Leeladhar spoke of a need to review the policy last week, the industry expects an announcement in this regard in the forthcoming monetary policy slated for April 29. D-NBFCs are expected to be given sufficient time to convert themselves into non-deposit-taking companies or banks or shift to another model.

Officials of various D-NBFCs said RBI had already held informal discussions and had been trying to impress upon them for at least three years now that they should reduce their dependence on public deposits. This meant whatever deposits NBFCs had already accepted so far should be repaid, said the managing director of a D-NBFC.

The impact will be felt mainly by residuary NBFCs (RNBFCs), which are finance companies that depend solely on public deposits. Three RNBFCs — Sahara India Financial Corporation, Peerless General Finance and Disari India Savings and Credit Corporation — accounted for 91.7 per cent of the Rs 24,665 crore deposits mobilised by 362 NBFCs.

Last year, RBI asked Lucknow-based Sahara and Kolkata-based Peerless to stop accepting public deposits by 2010. Whenever RBI changes the policy regarding D-NBFCs, the three RNBFCs will have to shift to different models, according to an executive of one of the companies.

According to a communique from Peerless General Finance Managing Director S K Roy, posted on the company’s website, “Despite our having a wide range of products in the RNBC category, it is difficult to sustain our growth on the basis of this business as its future is uncertain due to strict regulations. With this in mind, we have forayed into the FPD (financial products distribution) business.”

Peerless is already working towards converting itself into an FPD company. The company has entered into tie-ups for distributing mutual funds, insurance policies (life and non-life), loan products and credit cards.

It is also asking its depositors to use the deposit to buy various financial products. A Sahara spokesperson refused comment, while Disari executives could not be reached.

Excluding RNBFCs, for most NBFCs, 5 to 10 per cent of their total resources come from public deposits, which are declining in importance in the last three years, while other sources such as market borrowings and bank finance have assumed more importance.

The reason why public deposits have become less attractive for NBFCs vis-à-vis other sources such as bank finance and market borrowings is due to higher resource mobilisation costs. The deposit rate is high, in addititon to the various costs associated with retail deposits such as transaction cost, printing and stationery cost, servicing cost, making them an expensive source, an industry expert said.

With the asset-liability management also proving tough, several NBFCs have stopped raising deposits. For instance, Mahindra and Mahindra Financial Services has not raised public deposits during the last three years.

Fullerton India, which also has a licence to raise public deposits, has not been raising funds from the public. For Bajaj Auto Finance, only 5 per cent of the resources come from public deposits, while it is less than 10 per cent for Shriram Transport Finance.

Says Fali Hodiwalla, manager, KPMG Advisory Services, “RBI has been fairly consistent in reiterating that commercial banks should be the sole mobiliser of public deposits. This is because banks have more regulations in place, capital adequacy norms, the disclosure and prudential norms are more stringent and therefore are a much safer avenue for the public to park their deposits.”

Besides, deposits up to Rs 1 lakh in a bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), while deposits with NBFCs do not hold any such safety for a customer.