Sucheta Dalal :Bank of Rajasthan: SEBI’s dubious logic
Sucheta Dalal

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Bank of Rajasthan: SEBI’s dubious logic  

April 3, 2012

SEBI whole-time member Prashant Saran, a former central banker, let off the group saying that the violation need not be ‘considered grave’ since it did not involve price or volume manipulation to hurt other investors’ interest – even though the bank deliberately flouted RBI norms.

Sucheta Dalal

In a belligerent letter to the prime minister just before his term ended in 2011, Dr KM Abraham, former whole-time member of the Securities and Exchange Board of India (SEBI) had levelled several allegations about the finance minister’s interest in four issues—on-going investigation into Bank of Rajasthan’s (BoR) promoters, MCX-SX’s application to trade in equities, funds raised by the Sahara group without SEBI approval and the appointment of a chairman at UTI Mutual Fund (UTIMF). Of these, the MCX and Sahara issues are in the hands of the judiciary and UTIMF remains shamefully headless, after the controversial attempt to bring in a political appointee. The BoR issue,
however, is bound to raise several eyebrows.  

In an order at March-end, SEBI’s whole-time member Prashant Saran has lifted a two-year-old interim ban on nearly 100 entities connected with the Tayal group, erstwhile promoters of BoR. The ban was imposed after SEBI found that they had increased their stake in the Bank to 55% in contravention of an RBI directive to reduce it from 44.71% to 28.6%. Mr Saran, a former central banker, let off the group saying that the violation need not be ‘considered grave’ since it did not involve price or volume manipulation to hurt other investors’ interest. BoR has since merged with ICICI Bank.

SEBI’s view exposes a strange dichotomy. It suggests that the deliberate flouting of an RBI directive is irrelevant and will not attract punishment if the accused is no longer subject to banking supervision. The order seems to justify its leniency saying that RBI’s permission for BoR to merge with ICICI Bank suggested that it did not find Tayal’s violations serious. Incidentally, an RBI-ordered audit of the Bank had revealed fairly serious violations in its corporate accounts, lending decisions and adherence to anti-money-laundering norms. In our view, rather than being an endorsement of the promoters, RBI probably thought it safer for the Bank to be out of Tayals’ clutches. The Tayal group entities will continue to go through an adjudication process, whose outcome will now be watched with interest.


-- Sucheta Dalal