With the stock market showing no signs of a significant correction, the capital market regulator has the additional worry about various scam-accused having re-entered the market in a big way and operating through trading centres such as Kolkata or hiding behind multiple-layers of sub-accounts of Foreign Institutional Investors (FII). M. Damodaran, Chairman of the Securities and Exchange Board of India (SEBI) realises that there is no way of tracking or nabbing market manipulation without the help of other investigation agencies. While in the past, these agencies have been notorious for not co-operating with each other, we learn that the SEBI chief has been quietly building bridges with the Central Bureau of Investigation (CBI), the Enforcement Directorate and the Income Tax Department in the hope of creating an effective shared information network that would allow these agencies to act together to get results. We learn that some recent raids by the CBI on a famous scam-accused broker is part of this action. Similarly, the tax authorities are apparently examining this broker’s ability to throw a lot of money around without any apparent source of income. As for the Enforcement Directorate, it has in the past been able to make considerable headway in tracking the flow of funds in Home Trade and the DSQ group, but for some curious reason, those investigations did not lead to substantive action. If SEBI and the three investigative agencies are able to network well this time, at the highest level, they have a good chance of breaking through the morass of corruption and inefficiency that is invariably exploited by the scamsters.
The committee to re-examine the usage, structure and feasibility of the MAPIN database bowed to popular opinion and recommended an end to biometric identification of investors. Its report also makes some trenchant observations about the implementation of MAPIN. For instance, it says that some of the data captured by MAPIN was already outdated, because no updation process was in place and the financial sector has a high attrition rate. It also says cost of the new MAPIN database recommended by it, including generation of new unique IDs, maintenance of database and issuance of cards ‘‘shall be significantly lower than the present system’’. This is interesting, because the cost estimates would have come from National Securities Depository, which was the implementing agency for MAPIN and its chairman C.B. Bhave was a member of the committee. A careful reading of the report shows that there is a little asterisk against Mr. Bhave’s name and a cryptic mention at the bottom of the page that he was a member until May 24, 2005. Much of the report was written after it. If there were internal disagreements about the recommendations, then the committee has been extremely tight-lipped about them, but for the reference to implementation and high cost.
SEBI is planning a two-pronged strategy to increase competition among Depositories and Depository Participants (DP). For starters, SEBI wants stock exchanges to push companies to voluntarily bear part of the depository costs through suasion rather than mandate. Some of the better companies have already offered to do so. Secondly, SEBI plans to scrap the exit load on investors switching DP accounts from one depository to another or between one DP and another. These exit loads took the form of hefty transaction charges, which were an exit barrier. They forced investors to stick with a DP despite high tariffs or bad service because it was expensive to switch. Meanwhile, DPs continue to conjure up new charges to levy on hapless investors. For instance, on July 1, ICICI Bank began to charge a new fee for adding technology features to DP accounts.
A top banker tells us that some eastern region banks have started a new racket of issuing Export Performance Guarantees on behalf of exporters, knowing fully well that there will be no genuine exports. A Performance Guarantee is an assurance provided by a bank that if an exporter fails to deliver on his commitment, then the buyer would be paid an assured sum of money (anywhere between 5 and 25 per cent of the export contract). Banks earn a fee of one to two per cent for providing the guarantee. However, some banks are colluding with exporters to provide a guarantee, without a genuine export order. Interestingly, banks are usually protected by a counter guarantee from the Export Credit Guarantee Corporation (ECGC). This means that ECGC could end up footing the bill for fake performance guarantees. But reports of the Comptroller and Auditor General show that it is aware of such tricks and has pulled up the ECGC in the past for paying up on claims by public sector banks such as Punjab National Bank without ascertaining all the facts and details.
The former Secretary, Economic Affairs was apparently a busy man in his last week in North Block. One of the many decisions he steered that week was State Bank of India’s takeover of UTI Mutual Fund. Transferring assets of over Rs 20,000 crore should fetch the government at anywhere between Rs 1,000-Rs 1,500 crore.