First there was Peerless, a life insurance co. When life insurance business was nationalised In 1956, the co. continued its endowment policy schemes sans life cover in the guise of small savings schemes spread over 5 to 25 years. In essence the schemes were nothing but long term recurring deposit schemes. In late 1960s RBI issued directions to non banking financial cos. putting a cap on their public deposit acceptance. The co applied to RBI for exemption from the ceiling provisions of the directions which was granted with certain conditions. The rest is history. The cos business grew exponentially over the years.
Here is the secret of the phenomenal success or Peerless and scores of similar cos culminating with Sahara. The co. pays 70% of the first years subscription as commission to the agents. The schemes provided for forfeiture of the entire subscription if the depositor discontinues within three years. The agents had incentive and strict instructions not to approach subscribers after the first year with the result most of the certificates lapsed and subscriptions forfeited. This is the source of thousands of chores rupees assets of such cos. The agents of these cos. were those who could persuade gullible people who had no access to banking facilities to part with their small savings. Some of the Peerless agents started their own cos. collected the loot as long as possible and disappeared.
Coming to Sahara, I was then attached to Central Office of the then DNBC at Calcutta. Subrata Roy approached me some time in 1978 - 79 seeking my advice on starting a co. on the lines Peerless. I explained to him that both RBI and GOI considered the type of business unethical and against public interest and a Bill to ban such schemes was already in the Parliament. Roy must have realised the ineffectiveness of Indian legal system and taken full advantage.by establishing SAHARA. To make it more acceptable to the gullible public he roped in celebrities like FM Sam Manekshaw and Kapil Dev and scores of others as directors. He also resorted to cheap gimmicks like clamping himself and other office bearers as "workers": This is the inside untold of multi billionaire Subrata Roy and his Sahara Pariwar.
If only the RBI had rejected Peerless's application for exemption, millions of innocent people would not have lost their hard earned life's savings.
- B. K. Kamath, CGM Retd
1 comment:
It is sad that the like of senior officials of Mr B.K.Kamath in the RBI simply watched the happenings in Sahara and allowed the poor people in the country to suffer. If what Mr Kamath’s claim is a true statement, then it would warrant suitable action against the company. What the hell was Mr Kamath as CGM of DNBC and the like of senior officers of RBI were doing when they came to know of the dubious ways of appropriating the money from the poor when the staff of Sahara were instructed to stop visiting clients from the second year so that the policies would lapse and the money paid could be used by the company. As a senior executive he should have then initiated a note for strict criminal action against Sahara. Now after billions of rupees have been robbed from the public in the way he has narrated, it is like shutting the stable after the horse has bolted. It is precisely for this inaction on the part of RBI against its own inefficient officers and absence any accountability among them, the FSLRC has recommended for an oversight authority for RBI.
RBI should take suo moto action against Sahara based on the observations of Mr Kamath and also see if there was any criminality in exempting Peerless to collect public deposits over and above the cap fixed for NBFCs then.
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