Small bounce back possible: Thursday Closing Report

If the Nifty manages to hold above today’s low we may see a small bounce back

Worries about the slowdown in the domestic economy and the spiralling European debt situation brought the market down for the sixth day today. Today’s fall in the Sensex (1.87%) and Nifty (1.90%) has been the maximum since 22nd September 2011. Both the indices closed on a 26-day closing low (including today). Since July 1990, the Nifty has witnessed a six day fall on 86 occasions (including the current one). Of the past 85 times, the index has been in the positive on the 7th trading day 45 times and 40 times in the negative. The Nifty has broken its second support of 4,980 today. In case the index manages to hold above today’s low, we may see a small bounce back. However, the chance of fresh selling remains high. The volume on the National Stock Exchange was 63.78 crore shares.

The market opened marginally lower this morning on concerns about the slowdown in the domestic economy and the European situation. The Nifty opened at 5,027, down three points from its previous close, and the Sensex lost 21 points to resume trade at 16,755. Oil & gas and power sectors were the worst hit in early trade.

Select buying, which began after 10am, pushed the indices into the green to the day’s high an hour later. At the highs, the Nifty rose to 5,037 and the Sensex touched 16,807. However, profit booking by institutional investors resulted in the market trading in the red.

Volatility continued with the indices plunging further southwards in the post-noon session as the key European markets extended their falls after yields of Spanish and French 10-year bonds hit their euro-era highs. The market touched the day’s low towards the close of the session with the Nifty slipping below the 5,000 mark to 4,919 and the Sensex tumbling to 16,755. At the close, the Nifty declined 96 points to 4,935 and the Sensex plunged 313 points to 16,463.

The advance-decline ratio on the NSE was 429:1,249.

The broader indices outperformed the Sensex today as the BSE Mid-cap index settled 1.30% down and BSE Small-cap index was 1.15% lower.

The sectoral space was a sea of red today. BSE Oil & Gas (down 3.39%); BSE Power (down 2.86%); BSE Metal (down 2.48%); BSE Realty (down 2.40%) and BSE Capital Goods (down 2.19%) were the top losers.

Hero MotoCorp (up 0.71%); Cipla (up 0.42%) and Sun Pharma (up 0.25%) were the only gainers among the 30-share Sensex list. The losers were led by Jaiprakash Associates (down 6.49%); Reliance Industries (down 4.51%); Maruti Suzuki (down 4.44%); BHEL (down 4.37%) and Sterlite Industries (down 4.02%).

The top Nifty gainers were Reliance Infrastructure (up 1.14%); Hero MotoCorp (up 0.94%); Sun Pharma (up 0.73%); Cipla (up 0.18%) and TCS (up 0.07%). The major losers on the index were JP Associates (down 6.43%); Ranbaxy (down 5.29%); Sesa Goa (down 4.90%); RIL (down 4.85%) and Maruti Suzuki (down 4.68%).

Markets in Asia settled mostly lower on fresh concerns on the deepening debt crisis in Europe and Chinese policymakers’ affirmation to continue with inflation-tightening steps in view of higher prices.

The Shanghai Composite fell 0.16%; the Hang Seng declined 0.76%; the Jakarta Composite slipped .57%; the KLSE Composite lost 0.77% and the Straits Times tanked 1.04%. On the other hand, Nikkei 225 added 0.19%; the Seoul Composite gained 1.11% while the Taiwan Weighted settled unchanged.

Back home, foreign institutional investors were net sellers of equities totalling Rs488.89 crore on Wednesday. Conversely, domestic institutional investors were net buyers of stocks amounting to Rs277.79 crore.

Bajaj Auto has launched its new Boxer 150 motorcycle, with an engine capacity of 150cc, in the Egyptian market. The Boxer 150 is equipped with ExhausTec technology, which is environmentally friendly and fuel-efficient, the company said in a statement. The stock shed 0.04% to settle at Rs1,725 on the NSE.

Mahindra & Mahindra (M&M) arm Mahindra Defence Systems (MDS) and US-based Telephonics Corporation, on Thursday signed a joint-venture to manufacture radars and surveillance and communication systems for the Indian defence forces.

The JV intends to provide systems for air traffic management services, homeland security and other emerging surveillance requirements of the defence forces as also for the civilian applications.  M&M declined 2.06% to Rs759.25 on the NSE.

Wipro Technologies today said that it has implemented aircraft parts and material management system for All Nippon Airways to strengthen regulatory compliance and optimise its inventory stock. The company did not disclose the financial details. Wipro lost 1.54% to close trade at Rs368.40 on the NSE.


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Inspection reports of co-operative banks should be made public by RBI, rules CIC

In a precedent setting judgement, the CIC asked for the audit and inspection report of a cooperative bank to be disclosed under the RTI Act, rejecting the central banks contention that the disclosure would lead to loss of faith in some banks and adversely affect economic interests of the state.

In order to safeguard the interests of depositors and ensure a strong banking system, the Reserve Bank of India (RBI) is required to conduct an inspection of banks at periodic intervals under Section 35 of the B R Act, 1949. Such inspections directly affect the consumer, as it is his or her money that is being handled or mishandled by the banks. Co-operative Banks, which fall under dual regulation of RBI and state government, are no exceptions under such inspection, ruled the Chief Information Commission (CIC).
Baroda-based Makarpura Industrial Estate Cooperative Bank Ltd came under the RBI's scanner when a city resident Jayantilal N Mistry filed an RTI application on 19 October 2010 with the Urban Banks Department of the apex bank. The queries asked were as follows:
1. Procedure, rules and regulations of inspection being carried out on cooperative banks
2. Last RBI investigation and audit report carried out by Mr Santosh Kumar during 23 April 2010 and 6 May 2010 and sent to Registrar of the Cooperatives of Gujarat, Gandhinagar on Makarpura Industrial Estate Cooperative Bank Ltd with Reg No. 2808.
3. Last 20 years inspection reports with the name of inspector for the above named bank and action taken report
4. Reports on all cooperative banks that have gone into liquidation and action taken against all directors and managers for recovery of public funds, powers utilized by RBI and analysis, and procedures adopted.
5. Names of remaining cooperative banks under your observation for irregularities and action taken reports
6. Period (of time) required to take actions and its implementation
The Public Information officer replied on November 18, 2010 stating that: "RBI is conducting inspections under section 35 of the BR Act, 1949 (AACS) at prescribed intervals but information sought is maintained by the bank in a fiduciary capacity and was obtained by RBI during the course of inspection of the bank and hence cannot be given to outsiders; disclosure of such information may harm the interest of the bank and banking systems.'' The PIO also stated that such information is also exempt from disclosure under Sections 8(1)(a) and (e) of the RTI Act.

Mr Mistry then filed an appeal with the First Appellate Authority (FAA). The FAA also turned down the request for information saying: "The RTI Act was enacted to secure access to information under the control of public authorities subject to the provisions of Sections 8 and 9 of the Act only. In the present matter, the PIO has provided all the available information to the Appellant''. It quoted some CIC orders to support PIO's decision in not providing the remaining information.
Dissatisfied with the FAA's decision, Mr Mistry filed Second Appeal with the Central Information Commissioner (CIC) Shailesh Gandhi in New Delhi. The hearing was conducted on 17 October 2011, with the applicant, Mr Mistry as well as the RBI PIO Mr Udgata going live via video conference from Vadodara and Mumbai respectively.
During the hearing Mr Udgata insisted that Mr Mistry's query seeking RBI's audit and inspection reports fell under the purview of Section 8 (1) (a) of the RTI Act. He explained that disclosure of irregularities could lead to loss of faith in some banks and this could affect the economic interests of the State. He contended that the full bench decision of the Commission in RR Patel vs RBI CIC/MA/A/2006/00406 and 00150 dated 07/12/2006 had accepted this contention of RBI.

Mr Gandhi, the CIC announced his decision on 1 November 2011. He said, "If there is any information available on record regarding names of cooperative banks observed to have indulged in irregularities and any action taken reports against them should be disclosed to Mr Mistry." The CIC also asked the PIO to provide him the 'period required to take actions and implementation'.
Mr Gandhi also ordered that "As regards last RBI investigation and audit report carried out by Mr Santosh Kumar during 23 April 2010 and 6 May 2010 and sent to Registrar of the Cooperatives of Gujarat, the last 20 years inspection report carried out with the name of inspector on the above named bank and action taken report and reports on all cooperative banks that have gone into liquidation should be provided to the RTI applicant.

The CIC did not accept PIO's and Appellate Authority's decision that it comes under Section 8 and so this information should be denied. The PIO had quoted Section 81(a) and (e) for denying information. These state that: "Information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence; and; information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information.''

Mr Gandhi in his order, tore apart the connotation of 'fiduciary relationship' in this case. He explained that "This Bench, in a number of decisions, has held that the traditional definition of a 'fiduciary' is a person who occupies a position of trust in relation to someone else, therefore requiring him to act for the latter's benefit within the scope of that relationship. In business or law, we generally mean someone who has specific duties, such as those that attend a particular profession or role, e.g. doctor, lawyer, financial analyst or trustee."

"Another important characteristic of such a relationship is that the information must be given by the holder of information who must have a choice- as when a litigant goes to a particular lawyer, a customer chooses a particular bank, or a patient goes to particular doctor. An equally important characteristic for the relationship to qualify as a fiduciary relationship is that the provider of information gives the information for using it for the benefit of the one who is providing the information."

"All relationships usually have an element of trust, but all of them cannot be classified as fiduciary. Information provided in discharge of a statutory requirement, or to obtain a job, or to get a license, cannot be considered to have been given in a fiduciary relationship.  In the present matter, information provided by banks/ institutions subordinate to the RBI is done in fulfillment of statutory compliance. This would not create any fiduciary relationship as such between RBI and the subordinate banks/ institutions. The criteria defining a fiduciary relationship, as described above, must be satisfied which does not appear to have been done in the present matter. The inspection, audit and investigation is done by RBI officers as part of a statutory duty and banks have to undergo this in compliance with statutory requirements. Therefore, the Respondent's contention that the information sought was exempt under Section 8(1)(e) of the RTI Act is rejected,'' the CIC said.

Mr Gandhi also dismissed PIO's contention that parting of this information could lead to a loss of faith in banks and banking systems and therefore comes under Section 8(1)(a) of the RTI Act. Mr Gandhi stated that the PIO was primarily depending on the decision of a full bench in R. R. Patel v. RBI CIC/MA/A/2006/00406 and 00150 dated 07/12/2006 which in short, had entitled the RBI to deny information as it would 'adversely affect the economic interests of the State. The RBI is an expert body appointed to over this matter and we may therefore rely on its assessment'. This decision was also taken on the basis of submissions of the Deputy Governor of RBI - one of his contentions amongst others being that, 'the inspection carried out by RBI often brings out weaknesses in the financial institutions, systems and management of the inspected entities. Therefore, disclosure can erode public confidence not only in the inspected entity but in the banking sector as well. This could trigger a ripple effect on the deposits of not only one bank to which the information pertains but others as well due to contagion effect'.

( for those interested in the summary of this case, pl click here to see the CIC decision of Shailesh Gandhi)

Shailesh Gandhi, in his decision quoted from Justice Mathew's clarion call in State of Uttar Pradesh v. Raj Narain (1975) 4 SCC 428 - said, "In a government of  responsibility like ours, where all the agents of the public must be responsible for their conduct, there can be but few secrets. The people of this country have a right to know every public act, everything that is done in a public way by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. Their right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should make one wary when secrecy is claimed for transactions which can at any rate have no repercussion on public security".
It is also worthwhile remembering the observations of the Supreme Court of India in SP Gupta vs President of India & Ors. AIR 1982 SC 149:  "It is axiomatic that every action of the government must be actuated by public interest but even so we find cases, though not many, where governmental action is taken not for public good but for personal gain or other extraneous considerations. Sometimes governmental action is influenced by political and other motivations and pressures…At times, there are also instances of misuse or abuse of authority on the part of the executive".
"This is the new democratic culture of an open society towards which every liberal democracy is evolving and our country should be no exception. The concept of an open government is the direct emanation from the right to know which seems to be implicit in the right of free speech and expression guaranteed under Article 19(1)(a). Therefore, disclosure of information in regard to the functioning of Government must be the rule and secrecy an exception justified only where the strictest requirement of public interest so demands...''

Mr Gandhi also quoted other court decisions and concluded by explaining Section 8 of the RTI Act as follows: "Having laid down the above, this Bench examines the contention of the PIO in the present matter that the information is protected by the exemption under Section 8(1)(a) of the RTI Act. Since I do not chose to defer to the RBI's judgment in this matter, I will evaluate whether the PIO's contention of exemption under Section 8 (1) (a) is tenable. Section 8 (1) (a) exempts information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence".

"It is unlikely that disclosure would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific (or economic interests) of the State, relation with foreign State or lead to incitement of an offence". Hence I will examine whether the economic interests of the State are likely to be prejudicially affected by disclosure of the information. The information which has been claimed to be exempt under Section 8 (1) (a) is query 2, 3 and first part of query 4: "2. Last RBI investigation and audit report carried out by Mr. Santosh Kumar during 23/04/2010 to 06/05/2010 sent to Registrar of the co - operative of Gujarat, Gandhinagar on Makarpura Industrial Estate Cooperative Bank Ltd. Reg No. 2808. 3. Last 20 years inspection report carried out with the name of inspector on the above named bank and action taken report. 4. Reports on all cooperative banks that have gone into liquidation and action taken against all directors and managers for recovery of public funds, powers utilized by RBI and analysis, and procedures adopted."

"The PIO and the FAA claim that revealing the investigation and audit report of Makarpura Industrial Estate Cooperative Bank Ltd. in 2010 and the last twenty years would 'prejudicially affect the economic interests of the State'. This Bench is unable to understand how disclosing the investigation and audit report of Makarpura Industrial Estate Cooperative Bank Ltd. Reg. no. 2808 would in any miniscule way affect the economic interests of the Indian Nation. Hence there is no ground for refusing information with regard to query 2 and 3. Further, reports on all cooperative banks which have gone in liquidation sought in query 4, are also completely unlikely to affect the economic climate or interests of the Country. Declaring the audit, inspection and investigation reports of all cooperative banks which have gone into liquidation cannot do any further harm to such banks. If the banks have gone into liquidation, what more damage can come on them? The PIO perhaps rates the economic state of this Nation as being extremely fragile to make such a claim. I therefore cannot leave such a decision to the wisdom of RBI.

"I now refer to the conclusion and recommendation of the Full Bench of the Commission: The PIO is directed to provide the information as per records to the Appellant in relation to queries 2 to 6 before  30 November 2011,'' the CIC said in his order.

(Vinita Deshmukh is consulting editor of Moneylife. She is also an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She can be reached at [email protected]).

You may also want to read:

CIC says disclose inspection reports of apex cooperative banks as well



Anil Agashe

5 years ago

Oh yes absolutely a must. Many people may not read them but it is necessary. RBI's real fear is that their inaction will get publicised and they will be questioned. No bank becomes weak overnight.It takes time and in many instances it is the negligence on part of regulators is the cause.If action is initiated quickly some damage can be controlled.

Govind Gopal Shanbhag

5 years ago

Madam Vinita Jee - Your article is elaborate. But I was a senior officer of largest bank and was in audit for over a decade, I hv inspected one man branch in Lahul Spiti to largest branch in New York. Before retirement in January 2009 I was responsible for getting concurrent audit of largest banking branch of a bank (balance sheet size is more than 60 % of government/private sector banks. by inhouse/ CFAs. I hv attended number of audits done by various agencies including investigation audits (flow of funds to share market). I hv met number of auditors who are conducting balance sheet audit of co-operative banks and quality of auditors(audits) less said is better. RBI audit with various banks is generally data collection audit - they give a book let containing nearly 70-100 and banks are required to fill up these forms which are later published in their various magazines. There are only two qualitative audits in entire banking system (1) Central Office audit of branches conducted in State Bank branches - persons are coming from outside side who do thorough audit (2) Credit audit of large branches again by State Bank which is also too qualitative,. CFAs send article clerks with nil knowledge or half knowledge (which they say dangerous). And these firms if anything goes wrong are not accountable they generally take a declaration from the branch heads all information has been provided. All banks spend crores of rupees on statutory audit and all of us know how much purpose is served by this audit - but this is done as their lobby is very strong. Now coming to the point, even if the audit reports are made public and/or put in a web site who ensures auality ????????


Nagesh Kini

In Reply to Govind Gopal Shanbhag 5 years ago

1. We have the Maharashtra State Co-op. Bank where a large number of cooperative housing societies have not only parked their savings accounts but also crores of their sinking fund deposits. Money Life has carried detailed reports. Yet it is 'too big to fall'!

On the matter of Bank Statutory and Internal/Concurrent Audits, my experiences as a CA on the CAG/RBI empaneled statutory are equally identical.
The audit processes are archaic and need a serious rejig to make them more meaning full. The Q&A methods call for revamping - so much so the Long Form Audit Report required from Statutory Audits is termed "Lafda Audit Report." In stead of searching questions for identifying potential NPAs and window dressings they require a mass of statistics that the auditors simply ask the branch managements to fill in. This defeats the very purpose of the audit. The auditors are separately paid for this.

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