Sucheta Dalal :Selective memory (6 August 2001)
Sucheta Dalal

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Selective memory (6 August 2001)  

This government has the remarkable ability to negate its good intentions with selective implementation. It removed Narottam Sekaria from Unit Trust of India’s board, made an issue about not appointing Rajeev Chandrashekar to the State Bank of India board (because of Sebi action against BPL) and sent out broad hints that having an industrialist on the Sebi board has served no useful purpose. At the same time it appointed Raj Kumar Dhoot of Videocon to IDBI’s board. But Videocon has been indicted for collusive price rigging with stockbroker Harshad Mehta. Incidentally, Kulwant Rai, who was on IDBI’s board for a very long time seems to have moved out only after the sickness of Malavika Steel forced IDBI to recall loans and replace the Rais with a technocrat. In the Malvika case, one cannot even blame a nominee director for sleeping on the job—here was a case, where successive IDBI chairman had failed to ask Rai any tough questions during board meetings or to pay up his dues.

Past record

It is a pity that Dr Manmohan Singh defended Unit Trust of India’s (UTI) Rs 1,073 crore private placement purchase of Reliance shares in 1994. Dr Singh said that UTI made huge profits on its purchase of those shares. Any fund manager who allowed a Rs 1,000 crore equity investment to be ‘locked in’ for five years would have been sacked for incompetence, even if there were no malafide involved. Further, the share price sank steadily from Rs 385 to a paltry Rs 77 plus. UTI’s fund managers could do nothing to minimise the risk even when the stock price collapsed except maybe to buy more and lower their average price. In fact, it is not even clear at this stage whether the profit claimed on behalf of UTI is merely a notional profit or has already been booked.

This is what may have ultimately allowed UTI to claim a profit on a highly irregular investment. But that was not the only problem. Every time Reliance opens a new door, scores of other corporate houses immediately follow it. Soon after the Reliance placement, four steel companies placed shares with UTI. One placed Rs 800 crore of debentures with UTI—its share price is languishing below par. There were non-steel investments too. Finance minister Yashwant Sinha managed to stir up the Opposition, lobbing the problem to the JPC, but nobody is quite sure if this is a good move or will only lead to a merry-go-round of charges.

Flashback to CRB

Financial circles in Mumbai are curious about the persistence with which somebody is pushing reports on the CBI investigation into the collapse of the CR Bhansali’s Rs 1,000 crore empire, which wiped out the savings of thousands of investors. As far as Bhansali goes, there is little that the CBI has done after his initial arrest and release on bail . Instead it seems to have focussed all its attention on one executive director of Sebi against whom the agency wants stringent departmental action. Market circles wonder if it is the CBI being vindictive or it is somebody else who is trying to hard divert the investigators’ attention to the past.

Datta’s indictment

Tapas Datta, executive director of the Calcutta Stock Exchange (CSE) has given the Joint Parliamentary Committee (JPC) a graphic description of the manner in which he was cornered and rendered ineffectual by broker directors and blamed the crisis on the ‘nexus between banks and brokers’. He says that broker directors attended board meetings more regularly than non-elected ones, were always in a majority and thwarted his attempt to initiate stringent supervisory action. Citing a specific example he says, “an influential broker was transferring his trades in the unofficial market to the official market”. Datta ordered an inspection of this broker—‘a very influential broker indeed’—and gathered proof of his activities. He then discovered that the rules allowed for a maximum penalty of Rs 25,000 against the broker. The CSE board was apprised of the issue and it decided to amend the CSE rules to give to provide for higher penalties. He put the inspection report before the board, and it was decided that the rules would have to be amended. However, the proposed modification to increase the powers to impose penalties was simply shot down by the members at the general body meeting. Datta goes on to say—I humbly pray, the process of demutualisation is accelerated and implemented and the executives of stock exchanges of the country can function in a healthy corporate culture”. Datta’s testimony is a must-read for the Brokers Forum; they would then think twice about their aggressive posturing and the political support they claim to be drumming up for their cause.

-- Sucheta Dalal