Sahara, the Indian savings house that sponsors its nation’s cricket team, has been ordered to return a whopping $4.9 billion raised from nearly 30 million mostly rural investors. The episode is unlikely to help confidence among small savers. Yet accessing their capital is vital to help India’s development.
In June this year the Securities Exchange Board of India (SEBI) ordered Sahara to return the cash as it had “mobilised huge public money in the guise of private placements” without adhering to the regulatory framework. That ruling has just been upheld by India’s Securities Appellate Tribunal (SAT). Sahara argued that the bond issuance did not fall under SEBI’s jurisdiction. They have said they will appeal the judgment to the supreme court and have stated that they are left “speechless and astonished” to see the verdict of SAT.
Since an appeal is likely, it is possible that Sahara will escape censure and the need to pay back the cash. But the case highlights the fact that very large quantities of money in rural India are looking for a savings home. Sahara’s bond issue raised more money than the Coal India IPO – India’s largest ever. Its 30 million investors exceed the total number of retail investors in India’s entire universe of listed stocks.
There’s a substantial risk that India’s fast emerging economy is missing an opportunity to access large pools of domestic savings. India’s National Council of Applied Economic Research found that 81 percent of rural households save but only half keep their savings in bank deposits, 36 percent prefer to keep cash in hand. Only 2 percent of households opt for any kind of insurance.
Indian policy makers could benefit the economy as a whole by stepping up efforts at financial inclusion. For too long the authorities have focused on access to credit. That is well worthwhile. But savings vehicles are needed too. High quality insurance and pensions products could channel idling rural cash into active economic development.