Sucheta Dalal :State Bank of India my acquire scam-hit SHCIL?
Sucheta Dalal

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State Bank of India my acquire scam-hit SHCIL?  

Jan 10, 2008

Following the e-stamping scam, State Bank may take over SHCIL


By Sucheta Dalal


It may have been the Maharashtra government’s persistent questioning and threat to cancel the e-stamping project that did it. Or, a dawning realisation that running Stock Holding Corporation of India Limited (SHCIL), an unlisted entity with disinterested promoters was a recipe for recurring problems. Whatever the reason, we reliably learn that State Bank of India (SBI) has been asked to take over SHCIL. The issue may be taken up for approval at the SBI’s board meeting on 18th January.

Sources also say that SBI may consider turning into a global custodian and that the SBICI (the former BCCI bank acquired in another bailout) is the best vehicle for this business, which can begin operations with a large and ready base of Indian institutional investors.

The acquisition move has come after KPMG’s forensic investigation team, the Serious Frauds Investigation Office (in the Ministry of Corporate Affairs) and the Central Bureau of Investigation (CBI) conducted hush-hush investigations and submitted reports. Effectively however, the scam at SHCIL, documented at length by MoneyLIFE, has been successfully buried. In time-honoured tradition, patented by the Reserve Bank, a problem situation is sought to be resolved by organising a shotgun takeover of SHCIL by a large government undertaking.

The decision was prompted by the fact that several states willing to give e-stamping a try have expressed concerns about the technology, SHCIL’s ownership and the absence of any sovereign assurance about the technology.

This may have forced a realisation that the e-Stamping project can proceed on a pan-India basis only after a demonstrable clean-up and unified ownership of SHCIL. SBI certainly has the credibility and network to ensure this.

The acquisition apparently has the blessings of the Finance Ministry. Institutional shareholders of SHCIL, such as ICICI Bank, IFCI, IDBI and SUUTI have who have a 16.96% stake each, may be asked to relinquish their holding in favour of SBI to give it a controlling stake of 51%.

However, ICICI Bank has apparently been demanding a stiff price for the acquisition. It wants the National Stock Exchange (NSE) shares, held by SHCIL to be valued and also wants a control premium. However, SBI also has the option of acquiring shares from other institutional investors such as Life Insurance Corporation, which holds 15% , or entities such as IRBI and National Insurance of Kolkata, New India Assurance or Oriental Insurance.

With regard to valuation, it is important to remember that every institutional investor, especially those with a board representation, failed in their oversight responsibility leading to the scam. Otherwise, how could a rouge chairman – that too an IDBI employee – manage to steal a subsidiary, debilitate SHCIL, the parent company and dare to set up a 100% subsidiary in Singapore with the sole aim of skimming the fees payable on the e-stamping technology arrangement? It is absurd to think that ICICI could sabotage a takeover by demanding exaggerated value for its shares.


There are other issues as well. The pilot projects for implementation of the e-stamping project had led to new questions about technology. The States that are keen on implementation also want a larger liability cover, since SHCIL’se-stamping service does not have any international certification such as the ISO 9000 or the ISO 27001 (security). Worse, several key officials involved in the e-stamping project have quit the organisation in recent months.


Clearly, finding a single and responsible parent for SHCIL is a good idea and the government must ensure that it is not blocked by unfair valuation demands. Once the company itself is acquired, the government will hopefully have the courage to ensure that the scamsters do not get away with their dubious deeds.

Email: [email protected]

-- Sucheta Dalal