Sucheta Dalal :Rating and advice (21 July 2002)
Sucheta Dalal

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Rating and advice (21 July 2002)  

It’s now well accepted that when auditors offer consultancy services, they tend to be guided by the hefty fees that the latter brings them. Also that the series of international accounting scandals has led to a global move to stop auditors offering from consultancy services to the same clients.

The question is, doesn’t the same apply to credit rating firms? Rating firms are notorious for being the last to react to negative news, but more recently the trend of them turning consultants to troubled companies (this is especially true in the infrastructure sector) is disquieting.

It’s probably a good idea for the capital market regulator to start tracking cases where rating agencies also offer consultancy to the same company.

Whistleblower’s protection?

After Enron, WorldCcom and revelations from the FBI, there is a growing demand to provide more statutory protection for whistleblowers. The argument is that unless insiders are encouraged to spill the beans about corporate and institutional wrongdoing, very little dirt comes out.

It made us wonder what happened to our own whistleblower A.Tirodkar, who had exposed Bombay Stock Exchange (BSE) president Anand Rathi’s improper enquiry seeking sensitive market information from the surveillance department.

The BSE had reacted viciously by sacking Tirodkar. It then instituted a committee under a retired judge of the Bombay High Court who exonerated him. Yet the BSE went ahead and terminated Tirodkar’s services. Tirodkar then approached the Court, but in the meanwhile, Sebi wrote to the BSE directing it to re-examine its decision.

The BSE, led by one broker director and another public representative however continues on the vendetta trail. It first sat over Sebi’s letter until this week and has now directed him to appear for yet another hearing around mid-August. Meanwhile, it has sought legal opinion to find out whether he could still be dismissed on health grounds, if not for ‘letting down the exchange’ by doing his job.

No touching companies

After blowing hot for a day and getting its bit of media attention, the Joint Parliamentary Committee seems to have developed cold feet again about going after corporate scamsters. In response to a JPC question, the Department of Company Affairs has said that Himachal Futuristic Communications (HFCL) borrowed Rs 422 crore in the short period from February 16 to May 21, 2001.

Of this Rs 200 crore came from ICICI, Rs 70 crore from IDBI, Rs 50 crore from UTI, Rs 40 crore from Centurion Bank, Rs 33 crore from Bank of Punjab, Rs 25 crore from The Jammu & Kashmir Bank and Rs 4 crore from The Ratnakar Bank.

At the same time, it had lent Rs 496 crore to Ketan Parekh’s entities from October 2000 to March 16, 2001. The money went to Classic Credit (Rs 381 crore), Nakshatra Software (Rs 20 crore), Goldfish Corporation (Rs 20 crore) and Panther Fincap (Rs 75 crore).

Similarly, detailed information is available about half a dozen other companies as well. Despite such precise information available with it, a recent newspaper report suggests that the JPC’s long awaited interim report will not go into corporate collusion with scamsters.

First class privilege

Forbes magazine says until the stock market’s recent decline, the lines between the reasonably well-off and the truly rich had become increasingly blurred.

Almost anyone could buy a new Gucci bag or find a table at a top restaurant. But, says Forbes, the big-ticket items that still separate the have-a-littles from the have-a-lots are: Yachts, Old Master paintings and, of course, flying first class.

According to Forbes, even today, flying first class is a practice still reserved only for the very rich or very powerful, while business class is certainly more than adequate for most everyone, first class is in many ways almost needlessly extravagant.

Forbes here is talking about developed countries, places where the per capita income is a double-digit multiple of that in India. Yet, not only do most Indian industrialists fly only First Class, but so do all the heads of India’s beleaguered financial institutions.

In fact, many industrialists who head the defaulters list and not even satisfied with First Class. They own aircraft in India, and when abroad, charter flights for pleasure trips and football matches. Is it any wonder that the financial sector is bleeding the exchequer and picking investors’ pockets?

-- Sucheta Dalal