Sahara and Peerless are classified as residuary non-banking finance companies (RNBCs), which are now required to invest 100 per cent of their deposits in approved securities, including government bonds, fixed deposits with banks and mutual funds.
The RBI has also asked the two RNBCs to submit alternative business plans, banking sources said. Sahara has public deposits of about Rs 10,000 crore (Rs 100 billion) and Peerless around Rs 4,600 crore (Rs 46 billion).
Responding to a faxed query, Peerless said it had asked RBI to allow it more time to wind up the business of RNBC and identify a new business model.
Peerless already has plans to set up an asset management company for which it has received in-principle approval from the Securities and Exchange Board of India (Sebi), the securities market regulator.
Subsidiary Peerless Developer also acts as a corporate agent of Max New York Life Insurance for life insurance products and of IFFCO Tokio General Insurance Company for the distribution of general insurance products.
Sahara India, on the other hand, proposes to convert itself into a bank, sources said. In response to a faxed query, Sahara denied having any discussions with Sebi on the future of the company.
RNBCs accept public deposits in the form of daily deposits, recurring deposits and fixed deposits. The definition also covers non-banking finance companies that cannot be classified as equipment leasing, hire purchase, loan, investment, nidhi or chit fund companies, but which access public savings by operating recurring deposit-type schemes.
Non-Banking Finance Corporation (NBFC) deposits stood at Rs 22,842 crore (Rs 228.42 billion) on March 31, 2006, of which RNBCs accounted for 88 per cent (Rs 20,175 crore).
Unlike other NBFCs, which can deploy their assets in any manner, RNBCs are required to invest only in the directed pattern of investments. The RBI had reduced discretionary investments from 20 to 10 per cent from April 1, 2005 and to zero per cent from April 1 this year.
The RBI's decision to withdraw RNBCs' discretionary investment power has meant that deposits will have to be invested in approved securities, which the regulator considers safe and less risky.