Down, but not out

Will it come back or is this the beginning of its downfall? That’s the question many observers of Subrata Roy’s empire were asking last fortnight after the Reserve Bank of India (RBI) revised a directive against the Lucknowheadquartered group’s flagship, Sahara India Financial Corporation (SIFC). The new directive suggests that the RBI has taken a step backward.

After all, its initial order sought to bar SIFC from raising fresh funds. Now, the central bank has softened its stance; SIFC can accept deposits maturing till June 2011, and has till 2015 to repay depositors. Sahara, it may appear, has got a new lease of life, but the RBI ruling could also mark the onset of a slow death.

Observers say the softening of the RBI stance within two weeks shows the central bank made its initial decision in a hurry. They say SIFC may not have to worry too much as some of RBI’s earlier directives have not been implemented. The central bank gave a leeway as SIFC can still raise deposits with three-year maturity. Moreover, it has time till 2015 to repay all its depositors, a good enough time for the company to put its house in order.

Yet, the RBI directive makes it clear that the operations of Sahara’s residuary non-banking finance company are not in good shape. The central bank has directed SIFC to reconstitute its board within 30 days of the directive in such a way that half its members should be independent directors. This means SIFC will not have total control of its operations as RBI-approved independent directors will be observing all its activities. Sahara officials were not available for comment.

So, where does the group go from here? Almost all the other businesses of the group (media and entertainment, mutual funds, insurance, real estate) are not making enough money. If it has to survive after mid-2011, its other businesses —or even some new ones—need to begin kicking in. What will work to its advantage is the nationwide network it has on the ground, along with a high-profile brand. It could also prove an attractive acquisition target. But Roy may still not be ready to sell out—not at least at valuations that indicate distress. “In the past the Sahara Group has gone through tough times and come out of it. But this time it’s difficult to say,” says an analyst who declined to be named, and is a close observer of the group. He says it is difficult at the moment to think of its downfall when Lok Sabha elections are around the corner and a new RBI governor is on the way.

—Virendra Verma