THIS week, the Reserve Bank of India (RBI) pulled the plug on India’s largest Residuary Banking Company (RBC), Sahara India Financial Corporation.

An RBC is a financial company, which is not really a bank. It’s just that getting a license to set up an RBC is easier than getting a banking license; it calls for fewer regulations and compliances.

So, companies that don’t want to go the banking way opt to be an RBC. In Sahara’s case, they appear to have failed these compliances.

What went wrong according to RBI

• Sahara did not comply with the minimum interest rate requirement. The minimum interest rate that an Non Banking Financial Corporation must offer is 5 per cent per annum on term deposits and 3.5 per cent per annum on daily deposits. If reports are to be believed, some depositors got interest as 1 per cent per annum.
  
  
• They did not have the complete details of the agents involved in deposit collection.
  
  
• They did not follow all KYC (Know Your Customer) norms. Under these, the company must collect documents like PAN card copy, address proof etc, from depositors.
  
  
• They did not inform depositors about when their deposits would mature.

Note: It is essential for RBCs to follow these rules, so that you, the depositor or investor, are protected. Read all rules.

RBI’s verdict

Though initially, RBI put a complete ban on all future deposits, it later toned down the sentence. Now, Sahara needs to wind down its deposit base within seven years. Sahara will also no longer issue fresh deposits that mature beyond June 2011.

With this, once again, the spotlight is on the millions that investors pour into various avenues, without adequate knowledge and research. What’s more disheartening is that most investors and depositors don’t know their rights are.

Now, for those who have their monies locked into Sahara, there’s no cause to worry. The RBI is here to protect the rights of investors and depositors. Even if there had been a complete ban on Sahara to accept any fresh deposits, common investors will not suffer.

But there’s an opportunity to learn, here. Being aware of what’s happening around you will help you to avoid making mistakes with your money. Here’s what I learned: four cardinal rules of investing.