Lucknow: In a fresh setback to the beleaguered Sahara India Pariwar, Sahara India Financial Corporation Limited’s license holding has been cancelled by the Reserve Bank of India (RBI) on Tuesday.
The action has been taken by the department of non-banking supervision of the RBI, in Kanpur.
The move comes in wake of several irregularities and ignoring financial rules and regulations by Sahara, an official further informed.
The notice regarding cancellation of the license to conduct financial business has been sent to the Kapurthala headquarters of Sahara India.
The move is being seen as the ‘final nail’ in the fortunes of the once-fledgling company as the SIFCL was its core wing from which money was collected through small time subscribers and then routed to other wings such as media, real estate and others.
With its chairman Subrata Roy Sahara already in jail for more than a year, the RBI action, many fear, could “break the financial spine” of the organisation.
Under the new order, the Sahara India would be barred from any sort of financial transactions.
The RBI had in 2008 barred the company from taking any deposits from the people under its chit fund operations.
Many depositors had since then complained to the RBI that they were not being paid back their money by Sahara, following which a probe was ordered by the bank.
A report of the investigations was sent to the RBI HQ in Mumbai last month after which the penal action of cancelling the license of SIFCL was taken.
The Reserve Bank of India (RBI) is currently working with other financial sector regulators like Sebi, PFRDA and Irda to develop an interest rate market where mutual funds, pension and insurance funds could participate in securities lending to deepen market based finance and develop an alternate to bank finance.
“IRDA, SEBI and PFRDA too could help development of interest rate markets. For instance, short selling activity could benefit if a wider pool of securities lenders can be developed.
“Insurance and pension funds, mutual funds have significant holdings of Government securities that could be used to lent to short sellers. This would avoid short-squeeze incident we saw a couple of years back, apart from generating income for these entities.
“We are working with regulators to develop a securities lending product that could enable these entities to participate in securities lending,” B.P. Kanungo, Deputy Governor, Reserve Bank of India recently said at FIMMDA meeting in Moscow.
FIMMDA is a representative body of participants in the fixed income market in India.
He said the Indian financial sector which mostly has been a bank-based one needs to develop a robust fixed income market to bring in market discipline, to augment bank finance and indeed free up bank finance for uses that cannot access the market directly.
Development of the fixed income market has been an important objective of the Reserve Bank, the Government, the SEBI and other regulators these many years. Significant progress has been made, yet a lot remains to be achieved.
The Banking regulator is also currently looking at refurbishing some regulations on treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad to enable participants to move to global margining standards.
“The risk management at market level is pretty robust, with central counterparty settlement, exchange traded products, trade repositories, legal entity identifier.
But there is scope of improvement at entity-level as far as financial institutions are concerned, which will be tested with introduction of new accounting standards. Some other aspects of regulation – treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad – are all under examination to enable participants to move to global margining standards.
Kanungo further said in the next five years the demand for bonds will significantly outstrip the supply.
“It is estimated that five years down the line, the demand for bonds will significantly outstrip the supply,” he said. (IANS)