In your interest.
Online Personal Finance Magazine
No beating about the bush.
The scandal involving the chairman of Swiss National Bank and his consequent resignation brings to the focus the need to formulate appropriate guidelines on insider trading, corporate governance standards, conflict of interest, etc. for all the regulators in India and this should be taken up on priority by India’s Financial Stability & Development Council in the interest of improving the credibility of these institutions
The resignation, forced or otherwise, of Philipp Hildebrand, chairman of the Swiss National Bank (SNB) from his post on 9 January 2012 over allegations relating to a suspicious currency transaction made by his wife during last year is a concrete case of how things can turn out for people at high offices, when their family members, whether knowingly or unknowingly, enter into transactions which have a semblance of insider trading. Mr Hildebrand claims to have had no knowledge of the transactions entered into by his wife, but was forced to resign because of mounting political pressures. He, however, reportedly said that he resigned because it was “not possible to provide conclusive and final evidence” to prove that his wife traded without his knowledge.
The SNB, the central bank of Switzerland, in its press note released on 9 January 2012 made a crypt statement that based on the events and findings of past few days, their chairman had decided to resign in order to protect the institution and that the Bank’s Council accepted the same and thanked him for his outstanding achievement in the field of monetary policy, and for his enormous dedication in the service of both the Swiss National Bank and Switzerland.
SNB on 4 January 2012 published a report about private currency dealings of its chairman, Philipp Hildebrand, amidst allegations that he had profited from inside information. The report of PricewaterhouseCoopers, (PwC) which was engaged by SNB to investigate into the matter, revealed the following:
That is so far as Swiss National Bank and Swiss banking rules are concerned and the recent scandal revolving around them. But what about the position obtaining in India in respect of our own regulators and their senior managements are concerned?
The insider trading in stock market is regulated in India by Securities and Exchange Board of India (SEBI) under the SEBI (Prohibition of Insider Trading) Regulations 1992 and amended on 19 November 2008. These rules apply to all listed companies and each listed company is expected to formulate its own rules for its staff on the basis of model rules framed there under. One of the rules under the aforesaid SEBI regulations reads as under:
“All directors /officers/designated employees who buy or sell any number of shares of the company shall not enter into an opposite transactions i.e. sell or buy any number of shares during the next six months following the prior transaction.”
Obviously this six months rule may have been borrowed from the international practice, as PwC, too, has given a clean chit to the SNB chairman based on this six months rule.
These rules are applicable to all listed companies. But surprisingly nowhere it is mentioned that these rules are equally applicable to the officials of the regulators and their board members.
However, SEBI has put on its website “Code on Conflict of interest for Members of Board” adopted on 4 December 2008 to ensure that it conducts in a manner that does not compromise its ability to accomplish its mandate or undermine the public confidence in the ability of members(s) to discharge his responsibilities. It also stipulates that a member shall not deal in securities of a company listed on a recognized stock exchange based on unpublished price sensitive information which he may have got access to.
The Reserve Bank of India’s (RBI) website is silent in this regard and does not give out any details of the rules and regulations applicable to its directors and the senior management of the bank with regard to insider trading either in shares or in foreign exchange. RBI will definitely have its internal rules applicable to its staff but unfortunately, this is not put in public domain. In many cases, it appears that the rules applicable to banks are not made applicable to the RBI, as it is not a listed bank. For instance, all banks have to have a policy on “protected disclosure scheme”, but whether a similar scheme exists for RBI is not known, as it is not published on its website.
Surprisingly, corporate governance regulations applicable to all listed companies under Clause 49 of the Listing Agreement are also not applicable to the regulators, even to the extent relevant to them, as they are not listed companies. The regulators are more sacred than the regulated entities. Should they, therefore, not have appropriate governance guidelines which should lay down all these sensitive issues like insider trading, conflict of interest, protected disclosure norms, etc, to ensure their credibility among the public?
As the saying goes, “what’s sauce for goose is also sauce for the gander”. But this does not appear to be applicable to our regulators as rightly pointed out by Sucheta Dalal in her article “Regulators: Holier than thou” (Moneylife Digital newsletter dated 23 January 2012). There are a number of regulators in our country, which have enormous powers to move the markets and they make statements to the electronic media almost everyday without bothering about their consequences.
It is, therefore, necessary and expedient for the newly formed India’s Financial Stability & Development Council (FSDC) to look into this aspect and codify a set of regulations applicable to all regulators and their senior management not only in respect of insider trading in stocks, shares, securities, commodities and foreign exchange, but also with regard to the conflict of interest, corporate governance standards, etc, drawing from the example of Swiss National Bank, which has since put up a revised code for its board members and senior management in the wake of the scandal involving its chairman.
BBC News, Reuters, Bloomberg.
(The author is a financial consultant and he writes for Moneylife under a pen-name ‘Gurpur’)
Aphro Finance is neither a bank nor a financial institution, yet it claims to provide interest-free loans between Rs6 lakh and Rs33 lakh to women in Tamil Nadu to buy homes constructed by itself or its sister concern. What is the source of funding for AphroFin?
Anyone who want to take a home loan is little nervous about the prevailing interest rate which is over 10% due to the higher interest rate regime since past several months, courtesy, unabated inflation and rising policy rates. However, there is one company in Tamil Nadu that claims to provide interest-free home loans. Only catch is you need to buy a home built by its own sister concern.
Aphro Financial Services Pvt Ltd (AphroFin) and Aphro Micro Finance Pvt Ltd are the two companies based in Chennai. While not much information is available about these companies and the Aphro group of companies, the name of its director IP Yesudoss continues to be in focus. In fact, AphroFin’s website is full of Mr Yesudoss’ images and videos.
Here is what the company says: “The rules and regulations of many banks and finance companies are very severe. For example, the ways to get those loans are easily approachable by only educated people and not by illiterate and poor people. So these innocent people have to look for the help of others to get credit. Loan got after these system will be of high interest. Therefore within a few months people are not able to return the loan and they get more loans to repay and lose their happiness. Aphro was started to give a new dimension to these old systems. At this time of strong rules, regulations and high interest, Aphro started its office in the place where poor people live to support them with easy rules and less interest for the future welfare of them by giving business loans.”
Nothing wrong in providing loans to the needy. However, to do this on a large scale one needs to be super rich or a bank or financial institution. Unfortunately, AphroFin is none of them. It is just a broking agency-cum-builder. This is what is written by the agency on its site: “Aphro is a funding agency committed to the welfare of the people. Aphro was launched with the view to ensure the overall well–being of the people. We give loans to eligible people, under various schemes. Each scheme is designed to ensure 100% benefit to the borrowers…”
However, here is what it says about the loan under its terms and conditions...
“Your agreement with Aphro Finance does not constitute a guarantee of a loan as the lender grants the final approval and evidence may be required. We will act as your credit broker for the purpose of securing a loan or finance.”
When Moneylife contacted Aphro Trust (another unit or front of AphroFin), under the pretext of a loan seeker, one of the company’s managers said that the company doesn’t provide information over the phone. Information about loans and repayment is given when we visit the company personally. The company’s Hindi and English phone numbers are out of service. Also, the “Contact Us” section on the company’s website—http://www.aphrofin.com/contactus.php—doesn’t provide the location of the company. One has to fill in the details on the website.
Here is what the manager, said, “Loans are not provided for places outside Tamil Nadu. The company has just begun its operations. The company constructs buildings and give home loans for buying flats in those buildings only. We do not have any tie-up with any banks and the loans are provided by Aphro Trust.”
According to the information provided by an AphroFin representative, Aphro Trust is constructing buildings at about eight locations in Tamil Nadu and the buyer or loanee has to buy a flat in one of the buildings in order to avail the home loan. Aphro Trust has just started construction of the buildings and expects to complete them over next eight to 12 months.
AphroFin says: “Under this scheme Aphro builds and transfers Rs6,00,000 to Rs33,00,000. The scheme is operational across Tamil Nadu. It is enough if the loan taken is paid back and settled in instalments. The loan can be settled over a period of 15/20/25 years. Eligibility: 1) Anyone living in rented houses can apply 2) Allotment orders are given in three months and built-in homes are handed over in one year’s time.”
While there is no interest on loans offered for buying homes built by its own units, AphroFin, however, charges an administration fee for every application. The amount is not revealed. AphroFin also provides personal loans or business loans at an interest of 6% per annum, contrary to what every other lender in the country charges. This is surprising, especially when some banks are offering 6% to 7% interest on savings account while AphroFin if asking for just 6% interest on a loan!
Aphro Financial Services Pvt Ltd is registered with the ministry of corporate affairs with a CIN no. U65922TN2011PTC079076 and has shown its authorised capital as Rs5 lakh with Rs1 lakh as paid-up capital. This raises question about the source of funding of AphroFin and its units—Aphro Trust and Aphro Micro Finance. Similarly, while AphroFin maintained that it does not provide funding on its own and merely acts as funding agency or broker, it is revealed that the loans are provided by Aphro Trust.
Aprho Trust exists only on AphroFin’s website and few of its branches. There is no information available about the trust and whether it is genuine and properly registered anywhere. In addition, from where it is receiving the funds for distributing to women without any interest is a big mystery. Actually, this should have ringed loud alarm bells. But it has not. No one, including the police, administration and tax authorities are finding AphroFin’s business model strange and doubtful.
The reason? Last June year, Aphro Trust organised a function at Rajalakshmi Paradise Hall near Madavaram in Chennai to donate Rs5,000 each for 1,000 children belonging to its women members. And, according to information on AphroFin’s website, it was attended by P Sakthivel, joint commissioner of police (traffic), Chennai, Anthony Johnson Jayapal, commandant/ superintendent of police, small arms, Tamil Nadu along with several priests, educational officers and lawyers.
The RBI has raised a series of concern over banks foraying into non-banking activities like insurance, broking and mutual funds. It has written to the finance ministry to amend the RBI Act that will allow RBI to supervise bank subsidiaries. The current norm does not give the apex bank supervisory powers; it only allows monitoring. According to RBI, if a bank subsidiary fails, it can dent the...