Non-Banking finance companies are arguably RBI?s toughest regulatory remit. The case of Sahara?s NBFC, which has received a detailed dos and donts list from RBI, is additionally complicated by its well-nurtured relationships with some sections of the political class. So, it is with some relief that one notes that what has transpired after the Sahara issue travelled the bylanes of UP politics and corridors of the Supereme Court and RBI is, realistically, a good formula. RBI has given Sahara time, but it has made clear that its fundamental questions on the Sahara NBFC?s treatment of deposits and accounting haven?t altered. Thus, there are rules on how existing deposits should be managed and under what conditions new deposits can be accepted. Plus, RBI has appointed watchmen?a selected auditor and independent directors. If all goes well, Sahara will have the time to meet RBI?s wholly justified demands and deposits will in the meantime be managed well. RBI should be commended for displaying a smart mix of supervisory diligence?it began looking at Sahara five years ago?regulatory firmness and policymaking flexibility. There?s an important point that RBI has demonstrated here: that in the case of a financial entity that has a widely spread clientele and deals with substantial amounts of money, it is as important to demand improvements of the entity as it is to prevent an implosion.
How Sahara will adjust to the new regime, whether its non-NBFC businesses can do better, is a different and interesting question. The group?s bets on sectors as different as airlines, media, real estate etc., have shown, to put the best spin, mixed results. There aren?t too many examples of a corporate group reengineering itself on the back of a regulator-enforced paradigm shift in its core business. Also, India?s corporate sector is a different game now from when Sahara started. The supply of entrepreneurial skills has greatly increased and competition is more in many key sectors, including the sunrise activities. When one talks of Sahara, inevitably Uttar Pradesh comes to mind. And this is a good context to mourn again that India?s largest state?indeed the world?s sixth largest entity by population?is so starved of big industry. There are no signs yet that UP?s chief minister, who carried so much expectation, is serious about correcting this anomaly.