Books in order: Sahara tells Reserve Bank

Sahara Chairman Subrata Roy has told the Reserve Bank of India (RBI) that he has called back the investments made by Sahara India Financial Corporation in various group companies and other discretionary investments to meet the central bank's prudential norms for residuary non-banking companies. Roy had a meeting with RBI officials in the third week of September at the central bank's headquarters in Mumbai.

According to sources familiar with the development, 95 per cent of Sahara India's deposit portfolio in Sahara India Financial Corporation, the country's largest residuary non-banking company, has already been invested in instruments stipulated by the central bank, which includes government securities, deposits in other banks and corporate bonds with double A+ (AA+) and above rating.

Roy also informed the central bank the group was selling houses, plots and chalets in its Aamby Valley property "" an upmarket residential complex in Lonavala "" to individuals. The sources said the group had been able to generate over Rs 700 crore through bookings in the 1,000 acre real estate project till now.

The RBI's prudential norms require residuary non-banking companies to deploy 100 per cent of their deposits in secured deposits and instruments by the end of March, 2007. In other words, from the next financial year, there will not be any discretionary investments by residuary non-banking companies.

"Once the Sahara group pulls back its investment in the Aamby Valley project, Sahara India will be able to comply fully with the RBI stipulation," said a source.

"The meeting was a part of regular interaction between the company and the regulator. We are unable to comment on the content of any such meetings with the regulator," a Sahara spokesperson said.

The RBI has been progressively tightening the prudential norms of residuary non-banking companies by rationalising the pattern of direct investment to reduce the overall systemic risk in the financial sector.

In 2004-05, such non-banking companies could make use of 20 per cent of their deposits for discretionary investment. This was reduced to 10 per cent last year and to nil by the end of this year.

In an interview with Business Standard earlier this year, Roy had admitted the discretionary powers given to residuary non-banking companies helped in offering better yields to depositors as the interest earned on RBI-stipulated investments was not attractive.

The problem was accentuated by the 8 per cent annual returns offered by post offices, which Sahara India was finding difficult to match. The company had a deposit base of Rs 11,537.26 crore in March 2005.