Why Fed's stimulus will make little difference

When the markets finally realize the enormity of the debt problem across the world, no amount of stimulus will make much difference

The potential for additional stimulus may have distracted the markets, but it has not solved any problems. This is especially true in Europe where investors are concerned about Spanish banks. But are the real problems with the global economy limited to Europe? Or are the Spanish banks just a good example of what is soon to come?


An article about Spain published by the Financial Times in the fall of 2007 stated that there was a 21% rise in bad loans at a midsized Spanish bank, Banco Popular. The Bank of Spain wasn't concerned, because it considered Spanish banks well provisioned to sustain a two or even threefold rise in bad loans. Banco Popular provisions were 232% higher than its bad loans. Things change. While Spain's biggest banks, like Santander, BBVA and Caixabank, are in good shape, smaller regional banks, like Popular, have real issues. The recent stress test showed that Popular's bad loan provisions had been completely inadequate and that it had a €6 billion hole in its capital account.


It turns out that the problems in Spain are quite typical. Many of the larger banks in fast growing emerging markets are in relatively good shape, but the smaller banks are a mess. Like Spain, transparency is a major issue as the bad debts are either being hidden or ignored.


For example in South Korea the large banks are well capitalized and in theory unlikely to pose a systemic risk. These banks usually lend to safer, more solvent higher income customer. However there is another part of the financial system. These non banks or mutual savings institutions have grown rapidly. They specialize in lending to poorer or subprime borrowers. This lending has allowed household debt in South Korea to grow to 164% of disposable income. In the US before the crash, household debt had risen to about 120%. As the Korean economy slows, many of these debts will ultimately go bad potentially replaying the slump created by the credit card bubble that burst in 2003.


Recently a prominent Indian banker boasted that the Indian financial system was in good shape despite the down turn, because of its winning strategy of "boring banking". While this may be true of the private sector banks and the largest state banks, the smaller state owned banks are another story. In theory the level of nonperforming loans remains steady at just over 2%, but the number of 'restructured' loans has increased dramatically, over 50% by one recent estimate. State owned banks like the State Bank of India and 26 others account for 72% of total loans provided by Indian banks. They also hold 93% of the restructured loans. But 80% of these loans are held on the books of the smaller public sector banks. Many of these restructured loans were made to other public sector companies and infrastructure projects. In normal times only 15% of the restructured loans go bad, but these are not normal times. Like the Spanish banks the labelling of a loan as restructured just reduces the transparency, so it is difficult to determine the severity of the problem.


Vietnam also has a banking problem but most of its issues are apparently with the private sector banks. The state bank in Vietnam controls 70% of the market compared with only 16% for private domestic banks, but bad debts at these banks have, according to the central bank, reached alarming levels. The largest private bank, the Asia Commercial Bank, was listed in 2006. Just this month its CEO was arrested on suspicion of committing economic crimes.


Brazilian banks are having issues as well. Brazilian banks non-performing loan ratio in April 2012 was 7.9% exactly the same as Spain's average non-performing loan ratio of 7.91% reported a month earlier. After three years of deleveraging the US ratio is 4.2%. The problem is the same as Korea, massive consumer debt. Non-performing loans to consumers have risen to 8 per cent, the highest since November 2009. Consumer debt service burden is now at an unsustainable level of 24% of disposable income much higher than the 14% US consumers achieved before the 2008 collapse.


Then there is China. Certainly there is a 17% increase in bad loans for large banks like Bank of China, but at smaller banks like Ping An it is 50%. But the real problem is in the credit pyramids on everything from iron ore, to copper to cement mixers. The suppliers are selling on credit as are the buyers. Did I mention the shadow banking system?


Certainly the bad loans in Spain are severe, but the real problem has been the lack of transparency. In time the size of the problem will reveal itself in countries across the world. When the markets finally realize the real numbers, I doubt that any amount of stimulus will make much difference. 


(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected].)


SEBI scores big with Sahara

After the landmark verdict by the apex court, Subrata Roy-led Sahara Group has come out with full page ads in various newspapers. This is childishness and only underlines the dangers of allowing this group to keep expanding without regulatory checks and balances

In hindsight, it was probably a blunder for the shadowy Sahara Group to challenge the Securities Appellate Tribunal (SAT) in the Supreme Court. Having to cough up Rs24,000 crore in three months (Rs17,400 crore plus 15% interest) would sent jitters even through the finance ministry. And here is a corporate group, whose finances are most opaque, which is being asked to pay the money to millions of investors, who have never been seen or heard by most of us in the media world.


At a time when reports about rampant corruption are depressing the most optimistic Indians, the Sahara judgement is yet another one that re-establishes our faith in the judiciary. The speed with which the hearings were conducted by the Securities Appellate Tribunal (SAT) as well as the Supreme Court of India (which ensured that the case move forward swiftly even when the court was on vacation) shows that when it is a matter of importance, our judiciary is not slow. The clarity, lucidity and toughness of the 263 page judgement  delivered by justices KS Radhakrishnan and Jagdish Singh Khehar, is also a landmark because it  settles several issues of conflict and interpretation between different statutes and established the regulatory jurisdiction of the Securities and Exchange Board of India (SEBI) over financial instruments concocted to avoid disclosures and clearances (see Vinod Kothari’s article  ).


The crux of the matter is that two Sahara group companies—Sahara India Real Estate Corporation and Sahara Housing Investment Corporation (referred to as the ‘Saharas’ by the Supreme Court) challenged a SEBI order asking them to refund money raised through Optionally Fully Convertible Debentures (OFCDs) that were floated without seeking regulatory clearance nor planned to be listed on the bourses as required by law.


The judgement is also a massive triumph for senior counsel Arvind Datar, who was pitted against a galaxy of legal luminaries led by Fali Nariman, who left no stone unturned in trying to allow his clients, the two Sahara companies to escape the spotlight of regulatory attention.


As strange as it may seem, information about the Sahara Group’s finances is inversely proportional to its high public image. The logo is emblazoned on the outfits of our cricketers for decades, and the entire cricket team and a long list of movie stars are willing to lend their name to buttress its credibility. It makes news for snapping up prestigious global hotels like New York’s landmark Plaza Hotel and London’s Grosvenor House Hotel and for its bid to acquire the landmark Taj Mansingh (which has been managed by the Taj group for decades). It is allowed to start and close down an airline. And yet, the finances of most group companies are unknown since it operates in the unlisted space. 

In fact, until SEBI showed the courage to take the ‘hybrid’ optionally fully convertible debentures (which Fali Nariman argued should be outside SEBI’s supervision because they were so concocted) most regulators and enforcement agencies, including the Reserve Bank of India (RBI) have been extraordinarily soft on the group. (See Payment Promises  , Extension to Payments   and Never be-Sahara )


The Sahara Group seems to have great difficulty in understanding the role and sanctity of India’s regulatory and judicial process. All through its battle with SEBI, it has frequently issued full page advertisements in the media, making fanciful claims and questioning the regulator’s action. In a statement to the media, group chairman (he calls himself chief worker) Subrata Roy even claimed that the move was dictated by excessive regulatory restrictions in the financial sector.


The same lack of comprehension or deliberate obfuscation is evident in its response to the Supreme Court order as well. The group has again issued full-page advertisements today, titled “EMOTIONALLY SPEAKING” (we have tried to retain the emphasis and typeface) with another set of nonsensical claims and laments, which we present with our interpretation.



                                                       EMOTIONALLY SPEAKING


1.In 2008/2009 Sahara filed its RHP under the provisions of the Companies Act with the Ministry of Corporate Affairs, which was duly registered and approved by them on the same basis as was done in 2002 for an earlier issue of Sahara.  The earlier issue was duly closed and registered with the competent authority in 2008 along with the list of all investors running into millions.

Moneylife (ML): The whole point of the issue decided by the Supreme Court is that Sahara has been using a pliant and friendly ministry of corporate affairs (MCA) to avoid stricter disclosures, compliances by SEBI.


2. Any country’s system will collapse if after getting clear, clean permissions from country’s competent Government’s Regulator, the company is so severely punished.  Meaning, lawful bona-fides are severely punished with retrospective effect.

ML: We will wait to see whether this comment on the Supreme Court’s decision goes unchallenged. A top lawyer sources tell us that they are studying the issue and may take it up before the apex court.


3.Here we want to inform all our Hon’ble depositors and investors that you need not worry about anything and be at absolute peace since as Sahara is the most dutiful and absolute honest custodians of your money and by the grace of God, we are so healthy with all-round strength that there cannot be even one day delay in any payment commitment of Sahara.

ML: This is funny, because the apex court itself has doubts about whether Sahara’s investors are fictitious. That is why it has detailed an elaborate reporting process. The court has said: “If the documents produced (including original debenture applications) are not found to be genuine, SEBI is at liberty to start an investigation.” If the regulator is unable to verify the existence of subscribes the amount will be forfeited by the government of India. The apex court has further ensured that the process if water-tight by appointing justice BN Agrawal, a retired Supreme Court judge to oversee whether the directions issued by it are effectively complied with by SEBI as well as the Saharas.


4. In the last 33 years there is not a single complaint of non-payment, whereas we have paid around Rs1,40,000 crores maturity/redemption and against the enrolment of around 12 crores investors.

ML: Answered by the point above


5. People cannot accept Sahara’s meteoric growth. Instead of being appreciated, all along we have been at the receiving end of the bashing from all authorities again and again.

ML: The portrayal of regulatory actions of RBI, SEBI and SAT followed by a landmark judgement by the Supreme Court is breathtaking in its childishness and only underlines the dangers of allowing this group to keep expanding without regulatory checks and balances.


6. All along for the past 7-8 years we have felt and faced the onslaught of various authorities since they concluded whimsically without any verification that the deposits, investments we have received from the public are fictitious and bogus as they feel the money with us is ill-gotten from politicians, etc.

ML: Again, no data was produced even before the Supreme Court, leading to such as stringent order.


7. Firstly, Income Tax Department held on to our refund for decades to the tune of around Rs2,000 crores, but ultimately it was truth that prevailed, they verified and verified and ultimately they had to pay us back the entire amount in the year 2011.

ML: Now that this claim is made in writing, Right to Information (RTI) activists can probably seek proof about whether this is indeed true in the manner claimed by Sahara.


8. Reserve Bank of India, in 2008, killed our financial inclusion based RNBC activities and gave us 7 years’ time to repay our depositors, which we cleared in just 4 years.

ML: Moneylife reports on this are self-explanatory RBI action:

a) Promises repayment:

b) Extends repayment:

c) Games companies play: Never be-sahara


9. Of course we shall never blame the Respected Judges of Hon’ble Courts of our beloved country.  However, it is the fault of the machinery which presents the facts incorrectly and in such a manner so as to create a false and negative perception so as to convince the Hon’ble courts that Sahara has collected unbelievably large sums of money from public which are actually ill gotten and fictitious.

ML: The best, most expensive and most revered legal brains in the country were retained by Sahara to present its case and a simple reading shows that they left no stone unturned in twisting the interpretation of various rules and regulations to benefit the company.



ML: Why wasn’t the data provided to SEBI or to the Supreme Court? The apex court has given the Saharas 10 days to produce verifiable data on investors alone with application forms.


11. Further we claim with challenge that each and every rupee we have accepted in last 33 years is always against receipt from the company and with an application form duly signed by the Hon’ble depositors/investors. Every rupee which has come to Sahara can be verified by the authenticity of the depositors/investors. WE INVITE THE CONCERNED AUTHORITIES OF THIS COUNTRY TO COME AND VERIFY.

ML: Laughable after a Supreme Court order.



 ML: Why was the data not produced in court or before the regulator for over two years? The next three points are mere ranting that need no comment but only underline the bizarre world which the ground inhabits and has been able to raise Rs73,000 crore of public deposits –according to its own advertisement in the papers.


13. Even we would like to mention that all along MCA, RoC and Sahara were lawfully (as per the Company’s Act) absolutely right, everyone’s problem is why and how can Sahara raise so much of funds from public. Irresponsible people only conclude that this is all ill-gotten money and from the politicians, whereas around 90% of our depositors, investors are those very small investors, who never go to banks and banks too never reach them.


14. We should rather always get a pat on our backs for such good social work. Had our committed ten lakh workers not gone to those small depositors they would have spent those monies in alcohol or gambling, etc, we are saving their monies and bringing them to the nation’s mainstream and thus helping those poor people for their better future out of forced savings.


15. The saddest part is sitting on the chair in air conditioned offices, they imagine and allege and never bother for any sort of verification.


16. If we continue to write about THE INJUSTICE WE HAVE FACED FROM SO FAULTY A SYSTEM OF OUR COUNTRY probably huge space will be required. Let us not go for those, but we should write here that for the future interest of our country these totally unjustified tortures are responsible for India’s corporates (Big, medium or small) continuously developing business outside the country and good brain run away from the country.  Of course, we at Sahara, we are not escapists.  We shall fight against the system and grow in our beloved country for the growth of our country.


Through our expansion programs in next 2 to 3 years we shall provide permanent salaried employment of around 3 lakhs people apart from around 5 lakhs new introduction of field workers.  Meaning Sahara shall be providing livelihood to around 18 Lac families.

ML: In the light of the claims in this advertisement and the Supreme Court judgement will the government and its various regulators simply stand by and allow the Sahara group to expand and grow as before? Will any of our political parties, either the ruling Congress, the Samajwadi Party, the communists or the Bharatiya Janata Party demand scrutiny or answers?



Sucheta Dalal

4 years ago

It has been many days since this advertisement, but notice, nobody has hauled Sahara to court.

Also, if you check out television channels, they have stepped up advertisements for their retail stores in a big way. They are also sponsoring programmes in the business channels. In fact advertisements for the online retail in business channels makes no sense at all... its just a way to shut them up!

AND... its working!

Ashok m Rane

4 years ago

We salute the judiciary system in the nation full of corruption. ML has provided a detail report giving required knowledge in the matter to readers. Now a days the role of Media is fully questionable as full page ads can be published in all newspapers for money.



In Reply to Ashok m Rane 4 years ago

The advertisement is akin to the advertisement issued by the dubious money chain company Nano Excel (now dead) before the arrest of its chief Maddineni.

Arun M Purohit

4 years ago


Arun Purohit ,

P M Ravindran

4 years ago

You ask: In the light of the claims in this advertisement and the Supreme Court judgement will the government and its various regulators simply stand by and allow the Sahara group to expand and grow as before? Will any of our political parties, either the ruling Congress, the Samajwadi Party, the communists or the Bharatiya Janata Party demand scrutiny or answers?

Now, as far as the Congress is concerned, so long as nobody questions their High Command its all fine and they would even bid for a slice of the pie. BJP is irrelevant so long as the Congress gets support from Mulayam, Mayavati etc on a quid pro quo basis.

nagesh kini

4 years ago

At long last the law has caught up with Sahara. Its full paged ads are vague and rambling full of sound and fury conveying nothing; a sheer contempt of SC.
They need to be hauled up on this score.The numbers put out don't answer SC statement asking for the autheticity of names and places. It is bound to come out when adequate particulars don't surface.

sohan modak

4 years ago

Bravo ML!


4 years ago

Subrato is the polished version of Madoff of US .Finally the law is catching up with him and the his Pozi schemes will soon get exposed once the refund monitoring starts.His cricket invetment is also for the facade of public credibilty as cricket is the opium of the masses in India.

Vikas Gupta

4 years ago

Sahara Group is totally unethical in nature. The employees, the management are the most corrupt one. I have experienced myself when Mr. Pandey, Branch Manager of Sahara India, Rohtak(Haryana) had been caught red handed, The whole Sahara Management was involved too.


4 years ago

Great Article. Keep it up Moneylife on explaining whats has been cooking with dubious Sahara!


4 years ago


This we can understand as educated class, but poor rickshaw puller,Labour,farmers don't know what's happening and their agents are still showing them this fancy appeal by Sahara Parivar. Such type of organisation should not flourish on poor man's hard earned money.

Shivendra Kumar

Decline to continue: Weekly Market Report

Higher high, higher low on the Nifty may change the trend

After closing in the positive for four weeks in a row, the Indian market closed lower on the continuing disruption of Parliament proceedings with the main opposition party, BJP, demanding nothing less than the resignation of the prime minister on the coal allotment issue. The political logjam has stalled the much-needed reforms process and has made investors restless.
The BSE Sensex ended the week at 17,430, a drop of 354 points (1.99%) and the NSE Nifty settled 128 points (2.38%) lower at 5,259. The market is likely to dip further. On Friday the Nifty made a lower high and a lower low and ended at the 50 day moving average. We may now see the index heading further down unless it manages to make a higher high and higher low.
The market closed lower on Monday on the political impasse in Delhi and selling in banking, capital goods and technology sectors. Continuing disruption in Parliament, which made investors nervous, was the cause of the market settling in the red on Tuesday. The benchmarks settled in the negative on Wednesday on extensive selling in blue chips and cautiousness ahead of the release of India’s first quarter GDP data.
The market closed in the positive on Thursday on buying in realty, healthcare and technology stocks in the last hour of trade. The market closed in the red on the last trading day of the week on the back of a slowdown in the country’s first quarter economic growth and continuing paralysis of the Parliament.
In the sectoral space, the BSE Fast Moving Consumer Goods and BSE Healthcare both closed up 1% while BSE Metal (down 7%) and BSE Realty (down 5%) were the top losers.
Among Sensex stocks, Cipla (up 5%), TCS (up 2%), HDFC, Tata Power and ITC (up 1% each) were the top gainers. The losers were led by Sterlite Industries (down 14%), Jindal Steel & Power (down 11%), Hero MotoCorp (down 8%), BHEL (down 7%) and Tata Steel (down 6%).
The top Nifty gainers were Cipla (up 3%), Power Grid Corporation, HDFC, TCS (up 2% each) and Siemens (up 1%). The key losers were Sterlite Ind, Jaiprakash Associates (down 14% each), Jindal Steel & Power, Sesa Goa (down 11% each) and Hero MotoCorp (down 9% each).
Poor showing by the manufacturing sector pulled down the GDP growth to 5.5% in the first quarter, the decade’s worst Q1 performance, prompting the government to press for quick decisions to boost investments. The growth rate on the sequential basis, however, was marginally better than 5.3% registered in the fourth quarter (January-March) of the last financial year.
In a major setback to the Sahara Group, the Supreme Court on Friday directed two of its companies to refund around Rs17,400 crore to their investors within three months with 15% interest. The two-judge bench directed the Securities and Exchange Board of India (SEBI) to take action against the companies, Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, if they fail to refund the money.
The bench further directed SEBI to conduct investigation against the companies to find out their actual subscriber base besides getting other relevant information.
On the international front, US Federal Reserve chairman Ben Bernanke on Friday said that the low rate policy will have to continue for some more time on the back of the slowdown in the economy. He added, “...the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions in a context of price stability.”
Meanwhile, China's official factory purchasing managers’ index fell to 49.2 in August from 50.1 in July, marking the lowest reading since November 2011.


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