The death on November 14 of Subroto Roy (75), former Managing Worker of the Lucknow-based Sahara Group of finance and real estate companies, received considerable coverage in the media.

By any yardstick Roy’s rags-to-riches rise was impressive. At the peak of his career, this enterprising entrepreneur who began as a chit fund manager, owned a civil aviation airline, five star hotels in London and New York and the Indian test cricket team wore the Sahara logo. Yet in the end when in the early years of the new millennium the Sahara empire was belatedly exposed as a giant ponzi scam in which newly mobilised funds are paid to redeem the old, Roy was obliged to serve a two-year term in prison and ordered by the Supreme Court to return a sum estimated at Rs.25,000 crore to millions of depositors/investors — most of them barely literate — under the supervision of SEBI (Securities and Exchange Board of India).

Although much has been written on Roy’s rise to wealth and power at the expense of the poor and illiterate in hinterland India, few have made its connection with nationalistion of India’s biggest banks in 1969. Although the stated objective of bank nationalisation was to make saving facilities and credit available to the poor masses, nationalised banks were soon ‘captured’ by their powerful unionised employees who devised complex paper work to deposit small amounts. Even to this day completing a deposit form remains a complex operation.

Simultaneously risk-averse clerks who rose to head nationalised bank branches were reluctant to advance credit to small scale enterprises and rural citizens in particular. This created fertile ground for lakhs of unemployed youth recruited as Sahara agents to collect high interest bearing deposits from millions of citizens in smalltown and rural India. With depositors initially paid high interest rates on savings, Sahara schemes attracted huge interest in subaltern India.

Inevitably as is common to all ponzi schemes, the ones who invested later couldn’t redeem their deposits. Especially since large amounts were invested in long-term gestation projects. The country’s notoriously slow police and legal systems, also buried in unnecessary paperwork, didn’t help either, as friendly deposit collectors transformed into threatening strongmen. When the Sahara ponzi scheme was finally blown and the Supreme Court took cognizance of it, Roy had to submit documents loaded on to 200 trucks to the court. These documents are currently being examined by SEBI to return small sums to millions of depositors across the country. Little will come of it.

The structural change that’s required is urgent privatisation of India’s public sector banks (PSBs) and licensing of thousands of profit-driven small high street banks which will chase saving and lending opportunities. That’s the prescription for converting dicey chit funds and NBFCs (non-banking financial companies) into citizen friendly small banks which will attract the custom of millions of savers put off by bureaucratic, unfriendly PSBs.