Many years since the stock market scam, a fresh probe has been ordered into the management of the infamous Global Trust Bank. Why now, and who all are likely to come under the scanner?
After all these years, the government has ordered a probe into the alleged involvement of Global Trust Bank’s management in the stock market scam of 2001. It has tasked the Serious Frauds Investigations Office (SFIO), an arm of the corporate affairs ministry, to look into the charges of funds diversion and accounts manipulation by the bank, supposed to have been deeply involved in aiding Ketan Parekh’s financial racketeering.
But why has the corporate affairs ministry suddenly ordered a fresh probe into the matter? It has been almost nine years since the Ketan Parekh led stock bubble ended in an inevitable collapse that sank two banks—GTB and Madhavpura Mercantile Co-operative Bank.
With regard to investigations against GTB, after spending countless hours and tonnes of public money, the Joint Parliamentary Committee (JPC) report unceremoniously dumped all matters related to it. Its 14th Progress Report on the matter concluded (on June 2009), “Investigations in this case have been completed. In all, 6 SCNs (show cause notices) had been issued to M/s Global Trust Bank and others. On conclusion of adjudication proceedings, charges against M/s Global Trust Bank in all the 6 SCNs have been dropped and the case stands closed. Hence, action against this company may be treated as complete.”
A scrutiny of the capital market exposure of GTB conducted by the central bank, Reserve Bank of India (RBI) during March 2001 revealed that its exposure was quite high and even violated the ceilings set up by the bank’s board for such exposure. The bank had also misled the board while reporting its exposure to the capital market by reckoning non-funded exposures to enlarge the quantum of the bank’s advances and to give the impression that such exposure was within the board’s prescribed limit at 20% of total advances.
Now that the issue has been raked up again, will the outcome be any different? It is not known who all would be the subject of scrutiny by the SFIO as a part of the probe. The SFIO is not willing to divulge too much about the matter. An official from SFIO confirmed that the management of the Global Trust Bank would be central to the investigation, but refused to divulge more details. “This matter came to us only yesterday (Monday, 1st June). It is too early to say anything about the matter. We cannot discuss about the nature of the investigation while it is still underway,” the official remarked.
It is entirely possible that the erstwhile chairman and managing director of GTB, Ramesh Gelli, would come under the scanner of the SFIO. The probe is also likely to delve into the manipulation of the bank’s books and the possible involvement of the board of directors, auditors and other bank officers in the fraud.
The JPC, constituted to bring the accused to book has mostly turned out to be a toothless tiger. Several big names in the industry have gotten away free, with barely a scratch to show. The Zee Group was one such big entity that got away with a mere warning from the Securities and Exchange Board of India’s whole-time member, TC Nair, for its role in the Ketan Parekh scam, despite copious evidence of its extraordinary fund transfers through accounts in GTB. It is believed that the Zee Group was willing to cough up Rs5 crore under a consent agreement with SEBI, but was only too happy to get only a rap on its knuckles from SEBI.
The new probe is expected to take at least six months to be done with, according to the SFIO official. It will depend on whether the SFIO can get the right documents at its disposal and the right people to speak to.
As the online trading platforms on NSE and BSE are unable to generate huge volumes, SEBI has called for a high-level meeting with bank-sponsored MFs and bank officials
Don't be surprised if the next time you walk into a bank and you are asked to open a demat account if you wish to invest in a mutual fund (MF). Market watchdog Securities and Exchange Board of India (SEBI) has called for a high-level meeting with bank-sponsored MFs and their respective retail product heads of the banks. The regulator had sent a communication to all bank-sponsored mutual funds and their respective banks on 1st June. The meeting is scheduled to be held on 7 June 2010.
According to sources, the agenda of this meeting is to chalk out a roadmap to boost mutual fund trading volumes on the Bombay Stock Exchange's (BSE) StAR MF platform and National Stock Exchange's (NSE) NEAT Mutual Fund Service System (MFSS) available on stock brokers' terminals.
The meeting will be attended by the CEOs of AMCs and the retail product heads of banks like IDBI Bank, HSBC Bank, Kotak Mahindra Bank, ICICI Bank, HDFC Bank and Axis Bank.
Among these banks, SBI Funds Management Pvt Ltd, HDFC Asset Management Company Ltd and ICICI Prudential Asset Management Co Ltd sell their units on both these platforms. Canara Robeco Mutual Fund is the only fund which is not yet listed on both the platforms. The participants will have a lot to mull over.
As Moneylife had previously reported, mutual fund volumes on these platforms are sluggish. (Read here: http://www.moneylife.in/article/8/3193.html)
Between 4 December 2009 and 31 May 2010, the BSE StAR platform has recorded 3,944 transactions worth Rs29.30 crore of net inflows while the NSE NEAT (MFSS) platform has witnessed Rs9.62 crore of net inflows from 30 November2009 till 31 May 2010. Mutual fund trading on NSE kicked off on 30 November 2009. On the first day, UTI Mutual Fund's various schemes generated over 300 transactions worth Rs78 lakh.
This was closely followed by the launch of BSE StAR platform last year on 4 December 2009. If we compare the trading volumes on the BSE StAR and NSE, BSE clearly scores over NSE.
The system of selling mutual funds through broker terminals was thought up when mutual fund sales slumped as the regulator cracked down on entry loads in August 2009. Online trading spelt less paperwork for investors but it also increased the cost of buying and selling units online as opening a demat account was compulsory. Also, it changed the nature of mutual funds from long-term investments to short-term instruments like stocks. Brokerage houses started to woo all mutual fund investors to convert their physical mutual fund investments into demat form in order to boost their revenues. Currently NSDL has more than one crore demat accounts while CDSL has around 66 lakh demat accounts as on 31 May 2010.
In his petition, minority shareholder Ram Prasad Somani contended that as the shares owned by the P K Tayal family and his group companies are under judicial scrutiny, they cannot enter into a merger scheme with ICICI Bank
A Supreme Court (SC) bench today declined to hear a petition filed by minority shareholders of the Bank of Rajasthan (BoR), opposing the proposed merger of the troubled Udaipur-based lender with ICICI Bank, reports PTI.
The bench, comprising Justices B S Chauhan and Swatanter Kumar, asked petitioner Ram Prasad Somani, who is opposing the proposed merger of BoR with ICICI Bank, to approach any other regular bench of the apex court.
The minority shareholders are not disclosing their shares, the bench said while refusing to hear the petition.
This is the second SC bench to have declined to hear the case. On 31st May, a two-judge vacation bench had refused to hear a petition filed by Somani stating that he should approach some other bench.
On 23rd May, ICICI Bank had agreed to take over BoR through a share-swap deal that values the troubled bank at about Rs 3,000 crore.
In his petition, Somani contended that as the shares owned by the P K Tayal family and his group companies are under judicial scrutiny, they cannot enter into a merger scheme with ICICI Bank.
According to the petitioner, the Tayals had acquired over 15% share in BoR without complying with a Securities and Exchange Board of India (SEBI) regulation that mandates a public announcement after crossing the limit.
Following that, SEBI ordered a probe into the allegations and, in March, banned the Tayals and their associated entities from dealing in stock markets until further orders.
Somani had, in 2009, approached the apex court against the Tayals increasing their stake in BoR.