Money & Banking
RBI imposes Rs2 lakh penalty on Rajasthan bank for excessive service charges

 The action by the apex bank should serve as a pointer to other banks—big and small—that charge excessive service charges

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs2 lakh on the Bundi Urban Co-operative Bank located at  Bundi in Rajasthan. According to a press release, the bank has been penalised for "repeated violations of Reserve Bank of India (RBI) directives relating to donation and levy of service charges on customers". A show-cause notice was sent to the bank, but the central bank found the response unsatisfactory.

Levying monetary penalty for violation of RBI guidelines on services charges to customers is the first of its kind by the RBI. The action by the apex bank should serve as a pointer to other banks-big and small-that charge excessive service charges.


Were Reliance Industries investors kept in the dark?

Reliance Industries’ failure to disclose material information about the steep 80% fall in the reserves of its KG-D6 block has led to questions about its corporate governance Among the independent directors are management guru Dipak C Jain and scientist RA Mashelkar

Reliance investors were startled a few days ago at media reports that its gas reserves at the KG-D6 block were 80% lower than claimed. Niko Resources of Canada, Reliance Industries' joint venture partner in the KG-D6 block came out with a shocking assessment on the KG-D6 block, which was released through PTI. It said, "Reliance Industries' flagging KG-D6 gas block holds 80% less reserves than previously estimated." It further said, "Proved plus probable reserves at Krishna Godavari basin D6 block has decreased to 1.93 trillion cubic feet (tcf) from about 9.65 Tcf previous estimates". This material information should have been disclosed to investors at first moment's notice.

While the news made waves in the market, the regulators remained silent. However EAS Sarma, former expenditure secretary, Government of India has written to U K Sinha, chairman of the Securities & Exchange Board of India (SEBI) and the secretary, Department of Economic Affairs asking them to examine the report. Mr Sarma has said that "this is an important bit of information" ought to have been promptly disclosed to investors. Also, that the capital investments reported in relation to the approved production schedules, as disclosed to the government, seem to go counter to this".

Mr Sarma has correctly requested SEBI to examine the following issues:

  • As a result of the non-disclosure, what has been the loss to the investors who have invested their hard earned savings on the premise that the value of the gas deposits was higher?
  • Has RIL transacted in its equity on the basis of inflated reporting of the deposits and their value?

What action should SEBI take if the report is correct?

Incidentally, this is not the first time that Moneylife has written about Reliance's patchy disclosures Recently, we had written about its Annual General Meeting, where it did not disclose information on some of its biggest projects. About the KG-D6 project, chairman Mukesh Ambani said, "We are well on the way to creating a pipeline of projects for our next wave of oil and gas development projects which would include R series discoveries and all the satellite discoveries. Subject to receiving the requisite approvals, we hope to add around 30 (million metric standard cubic metres per day (mmscmd) of additional production through the new wave of planned developments," whatever this means.

Earlier, RIL had in 2006 stated that output would rise to 80 mmscmd by 2012-13. It also said it would invest $5.2 billion to double the output to achieve the target. After making these rosy predictions, its share price went up from Rs1,264 to a high of Rs1608. However, natural gas output at KG-D6 fields has dipped to 31.33 million metric standard cubic meters per day (mmscmd) this month after hitting a peak of 61.5 mmscmd in June 2010. It hardly touched 80 mmscmd. After that it has dropped by nearly 55% to Rs719. Was Reliance playing around with the numbers and by having wildly optimistic view of the future?

Niko said the field performance at the D1/D3 fields during 2011 demonstrated "higher than expected pressure draw-downs". Further, "An assessment of reservoir performance concluded that, contrary to the previous geological model, the current D1/D3 producing wells did not appear to be receiving any contribution from outside the main channel areas," Niko said in the PTI release. Niko is known to be conservative in its assessments.

Niko holds 10% stake in KG-DWN-98/3 (or KG-D6 block) where RIL is the operator with 60% interest. The remaining 30% is held by British Petroleum PLC of UK. The 7,645 sq km KG-D6 Block has 19 oil and gas discoveries. Of these, production from the MA oil find began in September 2008 and from the Dhirubhai 1 and 3 gas discoveries in April 2009.


Personal Finance Exclusive
Barclays to pay $451 million penalty for attempting to manipulate Libor, Euribor rates

CFTC said that Barclays had attempted to manipulate and made false reports concerning two global benchmark interest rates on numerous occasion and sometimes on a daily basis between 2005 and 2009

London: British baking major Barclays has agreed to pay 290 million pounds ($451 million) worth penalties to the US and the UK authorities towards settling charges of attempting to manipulating Libor and Euribor rates, the global benchmark rates for lending.

The British banking major would pay penalties of 290 million pounds as part of settlement agreement with the UK's Financial Services Authority (FSA) and the US Department of Justice (DOJ). The entity said it has also entered into a pact with the US Commodity Futures Trading Commission (CFTC).

Out of the total amount, Barclays would shell out 200 million pounds to CFTC and 59.5 million pounds to FSA.

Striking an apologetic tone, Barclays CEO Bob Diamond said the events which gave rise to the resolutions relate to past actions which fell well short of the standards.

"I am sorry that some people acted in a manner not consistent with our culture and values," he said in a late night statement yesterday.

CFTC in a separate statement said that Barclays had attempted to manipulate and made false reports concerning two global benchmark interest rates-Libor and Euribor-on numerous occasion and sometimes on a daily basis between 2005 to 2009.

The regulator pointed out that Barclays' senior management and multiple traders were involved in the matter and that they also coordinated with traders at other banks to make false reports concerning both benchmark interest rates to benefit derivatives trading positions.

The information was used in determining the London interbank offered rate, Libor, and Euribor, which influence many other interest rates.

Libor is based on rate submissions from a relatively small and select panel of major banks, including Barclays, and is calculated and published daily for several different currencies by the British Banker's Association (BBA).

Generally, it reflects the cost of borrowing unsecured funds in the London interbank market.

Euribor, also calculated in a similar manner, measures the cost of borrowing in the Economic and Monetary Union of the European Union.

"The American public and our markets rely upon the integrity of benchmark interest rates like Libor and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of global economy," CFTC's Director of Enforcement David Meister said.

Citing collective responsibility as leaders, Mr Diamond said that he, Chris Lucas, Jerry del Missier and Rich Ricci, would voluntarily forgo any consideration for an annual bonus this year.


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