Now that the market is looking up again, ‘Dabba’ trading, which was beaten out last year through combined raids by the Securities and Exchange Board of India (SEBI) and the National Stock Exchange (NSE) is back in business. This time however, operators are ensuring that they leave no trail and instead run traditional bucket shops complete with musclemen to ensure that all dues are paid. All transactions are recorded on floppies or removable hard disks, which are taken away to safe locations everyday. No records are maintained in hard copies. Although NSE prices are still followed, the elaborate alternative electronic trading platforms have vanished and orders are relayed to market makers on telephone. Also, the complexion of the trade has changed. It is only patronised by hoarders of black money, who find it increasingly difficult to access the official bourses. The ‘dabba’ operators also offer derivatives contracts that are modified to suit their clientele by offering contracts that are half and quarter the size of those on the official bourse.
The day after
The biggest beneficiary of Samir Arora’s release turns out to be Alliance Capital Asset Management Company. Exactly a day after the Securities Appellate Tribunal (SAT) gave Arora a clean chit, Alliance sealed a deal to sell its mutual fund schemes aggregating nearly Rs 2,000 crore to Birla Mutual Fund. The quick deal only seems to confirm rumours that Alliance was finding it difficult to shed its Indian business until its liability on account of the Arora investigation was crystallised. But SAT’s carefully-worded order, throwing out all SEBI charges against Arora, seem set to give Alliance a double bonus. First, it makes it considerably difficult for SEBI to frame an appeal to the Supreme Court, at least on insider trading charges; secondly Alliance stands to avoid the Rs 15-crore penalty that SEBI had slapped against it. The irony is that capital market circles firmly believe that SEBI’s original case against Arora was made out only due to Alliance’s support and cooperation, which is why the regulator had initially not commented on the AMC’s role in the so-called insider trades.
Media reports say that the Reserve Bank of India (RBI) has asked banks to avoid Price Waterhouse & Co. (PWC) and Lovelock and Lewes as auditors after the Global Trust Bank debacle. The report has the auditing community wondering why the RBI remains focussed on the wrong target. Here’s what PWC’s audit report said for the year ended March 31, 2003: ‘‘Attention is drawn to Note 10 of Schedule XVIII regarding preparation of accounts on a going concern basis even though the net worth of the bank has been substantially eroded’’. This was due to provision for non-performing assets (NPAs) and taking into account the management’s claim about business growth and capital infusion. It warned that the accounts ‘‘do not include adjustments’’ that would be needed ‘‘in case the management’s business plans do not materialise.’’ It also pointed that ‘‘additional provision towards NPAs by utilisation of statutory reserves below the line after the net loss for the year is not in conformity with the accounting principles generally accepted in India.’’ Further it pointed to that fact that certain advances amounting to Rs 311.6 crore had been restructured, subsequent to the year-end, for which the management had claimed that provisioning was not required. Similarly, GTB’s management had claimed that no provisioning was also necessary with regard to certain non-banking assets worth Rs 181.7 crore acquired in ‘‘satisfaction of debts held for long term.’’ Despite these remarks, the RBI had welcomed GTB’s efforts at cleaning up its balance sheet. RBI has also not ordered any action against the firm of Mukund M. Chitale, although its inspection for 2000-01 had said, among other things, ‘‘there was no transparency of the observations of auditors on the affairs of the bank, particularly the correctness and adequacy of provisions. No divergences in asset classification and provisioning were furnished to the bank by the auditors in writing’’. It said, the bank’s proposal to reappoint the auditor ‘‘needs to be examined in the light of the above.’’ PWC’s appointment as auditor was a result of these strictures.
Although soaring oil prices are threatening a world-wide recession, India’s attractiveness as an investment destination is on the rise. Surveys of domestic investors show that after a decade of disenchantment, retail investors have again turned enthusiastic about the capital market, especially Initial Public Offerings. International investors are continuing to seek investment registration with SEBI. Not only have mammoth funds such as CalPERS and Fidelity entered India for the first time, but the Japanese, who have studiously stayed away from India also seem interested. At a roadshow for Japanese investors conducted in Tokyo last week, the NSE was surprised to find that as many as 70 investors turned up and their detailed questions suggested that they have been watching the Indian market very closely and are getting ready to invest. When the Japanese come, they usually do so in a big way and for the long term.