The Maharahstra government’s ban on the sale of gutka has probably been a boon of sorts for the business. As in case of Gujarat, where sale and consumption of alcohol is officially prohibited, but there is a flourishing and well-oiled underground business of supplying liquor, so it is with gutka.
Mumbai’s angadias, the traditional couriers who carry money and even diamond roughs across States, are now doing brisk business home-delivering carcinogenic little gutka sachets to addicts. That the ban may be good for sales seems clear from the increased keenness of gutka makers to finance stock market speculation.
While on market operations, we learn that Kolkata is no longer the capital of illegal badla funding. Although, some Kolkata financiers have certainly funded the recent ramping of second-grade information technology stocks, they are no longer the biggest in the business. The action has shifted to Kanpur.
Our market sources say that large sums of money have been flowing from a couple of Kanpur-based industrialists to Mumbai’s most notorious market operators. Interestingly, unlike Kolkata, the Kanpur Stock Exchange, whose board of directors was recently superseded by the regulator, seems uninvolved in this new hub of speculative activity.
Stock holding blues
The dispute between Kolkata broker Harish Biyani, the Stock Holding Corporation of India (SHCIL) and Indusind Bank continues to throw up new revelations.
Evidence unearthed by the Joint Parliamentary Committee’s questions reveal that the Securities and Exchange Board of India (Sebi) had not found it fit to scrutinise or regulate schemes that the custodial company had dreamt up for financing brokers.
Sebi’s stand was that the schemes were meant for deploying SHCIL’s surplus funds and were hence not within its purview and did not require its approval. With such an attitude and the benevolent support from the regulator, SHCIL did pretty much as it pleased.
All Sebi asked of SHCIL is that it maintain a net worth of Rs 50 crore for custodial operations and recommended that if its financing operations fell under Non Banking Finance Company rules, it should seek registration from the appropriate authorities.
Replying to JPC questions, Sebi said that SHCIL had set itself a limit of Rs 5 lakh per account on the ‘payment on sale’ scheme and Rs 50 lakh on the ‘settlement finance’ scheme. As against its own upper limits, it funded six circular transactions between Harish Biyani and his broking firms Biyani Securities Ltd, Doe Jones Investment and Arihant Exim running into several crores of rupees each.
Of these, four traded valued between Rs 5.69 crore to Rs 29.15 crore were expunged by the Calcutta Stock Exchange and their cancellation is under litigation. Clearly, the entire capital market ended up paying a heavy price for the regulators’ nonchalance and dereliction.
Broker problems
The Kozikode-based Nedungadi Bank still struggles to recover from the losses caused by stock broker Rajendra Banthia (former vice-president of the Bombay Stock Exchange and a close crony of the late Harshad Mehta) and has had its accounts heavily qualified in the bargain.
The broker and his firms manipulated bank funds, traded in the market and ran up losses. They now owe the bank Rs 21 crore of which Rs 20 crore has already been provided for. While the bank has filed arbitration proceedings with the BSE to recover its money, the broker has dragged it to the Mumbai High Court with a counter suit of Rs 1.79 crore.
Interestingly, despite the large losses suffered on his account, the bank’s annual report fights shy of naming the broker or his firms. It almost seems as though the bank is most reluctant to proceed against the broker who continues to remain one of its largest shareholders.
Tailpiece: It would be of interest to the regulators and stock exchanges to take a close look at internet trading. Is the Net really catching on as a trading medium? Not really, say market sources.
In fact, smart brokers have discovered that a little programme written in at their end, allows them to provide illegal sub-broker terminals across the country and some even abroad through the Net.
Illegal, because these sub-brokers are not registered with the Sebi and their turnover shows up as a direct trades. At least four top broking firms have set up such links and given out terminals to sub-brokers. Some even run little casino-like set-ups with multiple terminals for day traders. -- Sucheta Dalal
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