Sucheta Dalal :Rare Action Against Scamsters (16 June 2003)
Sucheta Dalal

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Rare Action Against Scamsters (16 June 2003)  

At a time when we are constantly lamenting the fact that scamsters are never punished, the ruthless action initiated by the Gujarat government against several ruling politicians who caused enormous losses to lakhs of investors is fairly stunning. Over the last five years, politically powerful people have systematically stripped scores of cooperative banks that they controlled, until they went bust. And the losses have been so huge that they are threatening to jeopardise the political fate of the ruling party in Gujarat.

The government clearly realises this and has ordered a massive clean up. Several politicians of the ruling Bharatiya Janata Party have been jailed in connection with one bank scandal or the other. The score so far is one MLA, two former MPs, one sitting MP and one former treasurer of the BJP behind bars. In fact, an ‘intermediary/fixer’ trying to intercede on behalf of a broker was told by chief minister Narendra Modi not to even bother to push the case.

Between two reputedly iron men, Narendra Modi and LK Advani, this is one tough act of the BJP that has gladdened peoples’ hearts. What is even more remarkable is that the sweeping action has nabbed a number brokers with a Teflon-coated ability to get away with scams.

Three weeks ago, this column talked about stockbroker Mukesh Babu of Mukesh Babu Securities, who has confessed to a hefty, Rs 225.63 crore liability to Madhavpura Mercantile Cooperative Bank and seemed to have gotten away scot-free. It was business as usual for his firm. His brokerage card was active both at the Bombay stock exchange (BSE) and the National Stock Exchange (NSE) and he remained an empanelled broker with all leading financial institutions. That changed last Wednesday when the Central Bureau of Investigation arrested Mukesh Babu and took him to Gujarat.

Another broker, Shirish Maniar was arrested along with Mukesh Babu. He too had wangled a clean limit of Rs 19 crore from the bank against a sanctioned limit of Rs 2 crore. Both the brokers were given generous credit facilities through the intervention of Ketan Parekh and his deal with the bank’s former chairman. The two brokers’ trading operations have now been suspended by the two national bourses.

Similarly, Rajendra Banthia, a Harshad Mehta crony, is also languishing in the Kheda District Jail at Bilodra, Gujarat along with Chiman Sathi, founder of Charotar Cooperative Bank. Bhantia, who became Vice President of the BSE after 1992, acquired control of Nedungadi Bank and ran it to the ground with his reckless speculation, even as the Reserve Bank looked on impotently. Although a case of criminal breach of trust was filed against his three brokerage firms after 2001, in order to recover over Rs 21 crore from them, Banthia was never arrested. However, when he attempted to dump his 40 per cent stake in Nedungadi Bank on to the management of Charotar Nagrik Cooperative Bank, he landed behind bars. Chiman Sathi and his sons have been charged with diverting funds from the bank to buy Banthia’s Nedungadi Bank shares. And the bank has now been taken over by Punjab National Bank.

Keeping Banthia company is BJP MP Dipak Patel (son of Chiman Sathi) of Anand district who has been accused of fraud. Ironically, Chiman Sathi, founded Charotar Bank in 1964 and used to routinely divert bank money to his other businesses. But it was the ambition to control Nedungadi Bank with Rs 36 crore with Banthia that did them in. Only Rs 9 crore of the money paid to Banthia has been recovered and there is little hope of getting back the rest. Between them, Chiman Sathi and his sons are responsible for bad loans to the tune of over Rs 77 crore.

The third and most recent in the list of powerful people, caught in the sweeping investigation is BJP minister of state for cow protection, Prabhatsinh Chauhan, and former BJP MP, Gopal Singh Solanki. The BJP minister, Chauhan has been accused of misappropriating Rs 128.5 crore from the Panchmahal District Co-operative Bank, which has gone bust. His group has to repay a Rs 87 crore loan to the bank. Although an FIR has been filed against Chauhan, as well as former BJP MP and bank chairman Gopalsingh Solanki, there is speculation that the BJP may go slow on proceedings against them.

Apart from the Panchmahal and Charotar banks there are three others involving BJP politicians. A former BJP treasurer CR Patil is an accused in the Diamond Jubilee Cooperative Bank case, former BJP MP Kanaksinh Magrola is accused in the Suryapur bank case and BJP MLA Dilip Patel is the target in Karamasad Nagrik Cooperative Bank.

Although the flurry of arrests and actions by the BJP government are heartening at one level, the key to winning depositors/voters confidence is to recover their money and pay it back. The arrest of political big shots is cold comfort for people who have lost their life’s savings.

And it is here that the BJP is on weak ground. The anti-Muslim war cry, which swept Narendra Modi to power in the assembly elections, may not work in a general election. Two years later, economic issues will make a significant difference, and the Congress party, which failed to rally people by playing up to the cooperative banks scandal during the assembly elections, may get a better reception this time.

Gujarat had over 300 cooperative banks in March 2001; they have now dwindled to 200. While 70 per cent of banking transactions in Gujarat took place through cooperative banks a few years ago, their collective deposits have now dropped by over Rs 5,000 crore and many banks remain on the verge of bankruptcy. Depositors have lost a whopping Rs 300 crore plus because of cooperative banks going bust and recovering that money is a tall order even for tough politicians. But depositors of cooperative banks are indeed a core vote bank in Gujarat. They are small traders, widows, pensioners, tiny savers and all other categories that usually get the BJP elected. The next few months will show whether the BJP’s tough enforcement actions win back voter confidence or whether political compulsions cause it to falter in its effort.

-- Sucheta Dalal