It was an ambitious decision, but taken without any due diligence
By SUDHIR BISHT
Subrata Roy, founder of the now-moribund Sahara Pariwar, started his career as the manufacturer of home-made namkeen in the early 1970s.
He sold his product shop-to-shop, riding his Lambretta scooter. He was a mechanical engineer by training but was an entrepreneur at heart.
Working with small traders, petty shopkeepers and their lowly paid employees, he realised that there was a need to provide banking services to the unbanked millions in India.
His residuary non-banking company (RNBC) recruited thousands of agents who went from house to house, several times a week, and collected deposits as low as 20 rupees from the account holders.
The business model was simple. It followed the following basic steps:
- Offer the depositors, who had never been inside a bank, the basic banking facility of opening a ‘savings or fixed deposit account'.
- Offer the depositors a rate of interest that was at least double the rate of the organised, formal banks.
- Invest the money in large land banks and other ventures that held the promise of very high return.
- Keep the cycle going by encouraging the investors to reinvest upon maturity.
So, what happened when the first set of depositors wanted their money back, doubled in 3 to 5 years? It was not a problem at all since within five years, there were many more people who wanted to put their money in these time deposits, than those who wanted to exit.
This created a ripple effect. The depositors never exited really and they kept on reinvesting.
Until the bubble burst, when the Sahara founder took the decision to go public. It was an ambitious decision but taken without any due diligence.
The Sahara founder thought that like all government departments that he had dealt with thus far, the Securities and Exchange Board of India (SEBI) would also play ball with the powerful and influential group.
He was, of course, very wrong.
Once he was under SEBI's watchful eye, it was found out that there were many irregularities in the way the Sahara group collected funds from the gullible public.
As soon as an inquiry was launched against Sahara group, the depositors' confidence went south.
Now instead of reinvesting the compounded amount, investors wanted to exit. One thing led to another and suddenly the Sahara group started wilting away.
The Sahara founder was arrested in 2014 and since then he had been in and out of jail, out mainly on parole on medical grounds.
Subrata Roy died on November 14, 2023 in a Mumbai hospital. He died a lonely death and most of the top-rung film stars and top politicians whom he could call at will to dance and drink at his White House-like mansion in Lucknow kept away from his funeral.
The Sahara group had invested the deposit money of its 30 million investors (some say 90 million investors) in diverse businesses, without any participation from its stakeholders.
There was complete lack of corporate governance in the way strategic decisions were taken by the group.
If a property caught Roy's fancy, it was bought immediately. If Roy wanted to get into aviation, an airline division was created almost overnight. Payments were made to his friends from Bollywood and from the political parties, merely at Roy's will.
At one time the Sahara group had spread its tentacles everywhere — aviation, television and print news, real estate, healthcare, hospitality…
Subrata Roy spent an estimated Rs 500 crores (Rs 5 billion_ on the wedding of his two sons and he chartered scores of planes to bring Bollywood stars to party at his Lucknow headquarters.
Roy had the best strategists and the most astute finance whiz kids to guide him. He hired the best marketing guys and the most advanced technology teams for his various businesses.
Roy fancied himself as the ultimate HR manager and would often call himself Chief Managing Worker instead of CEO.
He started an unusual style of corporate greeting that involved every employee touching his heart with his left hand and saying ‘Sahara Pranam' to one another inside the company premises. Even the anchors on Sahara TV greeted viewers with ‘Sahara Pranam'.
However, beneath all this ostensible show of humility was Roy's king-sized ego.
He treated his 1.2 million employees as agents and they received salaries that were just on par with minimum wages. These agents were completely brainwashed into believing that their ‘Sahara Shri', as Roy was referred to, could double investors' money in double quick time. Very often these agents too deposited their life savings into Sahara group schemes.
Roy's treatment of his managers was absolutely unprofessional. I spoke to a few mid-level managers who quit Sahara between 2002 and 2004, when the group was at its zenith. All had similar stories to tell.
They worked in the mobilisation group and had very stiff collection targets that were nearly impossible to achieve, in spite of the tall promises made to the depositors.
One of them confided in me that many times the mid- to senior-level managers were deployed as ushers or chaperones to Bollywood celebrities.
This gentleman, an MBA with eight years of experience, worked in the finance division of the Sahara group. He was asked to stand outside the hotel room of a fading Bollywood star and provide her all help in case she needed a car or if she wanted to eat anything special.
The manager was very disconcerted when he was deployed on such an assignment. The last straw on the proverbial camel's back was when the film star offered him a tip of Rs 500 as she checked out of the hotel. The manager refused to accept the tip and she felt offended and reported the matter to Sahara Shri.
The manager received an official reprimand from his management and he promptly quit. He said that he felt ‘liberated' the day he kicked his Sahara job.
Roy considered himself as the most knowledgeable leader when it came to understanding human behaviour. In fact he was a complete novice in these matters.
Roy has left a legacy that forced his sons to abstain from their dad's funeral, likely for fear of arrest by the law enforcement agencies.
Perhaps Roy suffered the consequences of his karma in this life itself. May his soul find a more mundane life in the next cycle.
Dr Sudhir Bisht, author
and columnist,
writes from New Delhi.
