National Round-up

The Reserve Bank of India (RBI) has directed the Gujarat State Registrar of Co-operative Societies to supercede the boards of all the eight co-operative banks that have lost around Rs. 80 crore in the Home Trade Government Securities scam. According to some sources the Registrar of Co-operative Societies has been told to appoint administrators for these banks under Section 15 (A) of the Co-operative Societies Act for violating banking norms.

All the eight banks are from South Gujarat region and include:

• Valsad Peoples’ Co-operative Bank
• Navsari Peoples’ Co-operative Bank
• Surat Nagrik Co-operative Bank
• Karamsad Nagrik Co-operative Bank
• Surat Mahila Nagrik Co-operative Bank
• Adajan Nagrik Co-operative Bank
• Udhana Co-operative Bank
• Gandevi Co-operative Bank

The Reserve Bank of India has decided to file criminal complaints against the erring directors of the scam-tainted co-operative banks.

Go to top

The Securities & Exchange Board of India (SEBI) is examining whether the new proposed central listing authority could be made responsible for laying down standard uniform listing processes and carrying out due diligence before a company is allowed to list on the exchanges. SEBI Chairman Shri G. N. Bajpai talking at a Seminar organized by the Institute of Company Secretaries of India (ICSI), at New Delhi mentioned that the companies would be free to list on the stock exchanges as per the present system and listing fees would be payable to the stock exchanges as at present. He also mentioned that it was necessary to develop a revenue model to finance the central listing authority. An Expert Group was looking into the concept of a central listing authority and was expected to submit their report to the SEBI Board shortly.

Central Listing has found favour both with regulators and market players in the light of manifest unevenness in due diligence conducted on companies that seek to list themselves on exchanges. It has been found that companies whose listing applications have been turned down on premier bourse such as NSE or BSE, still manage to get listed on smaller exchanges, as a result of their lax due diligence process.

Go to top

Government is proposing to introduce end use norms for companies raising funds from the public. The norms would be introduces as part of responsibilities of the Central Listing Authority (CLA), which would regulate not only pre-listing procedures, including clearing prospectuses, but also apply post listing measures to monitor the purpose for which the funds are used. Although reliable figures for quantum of abuse are not available, diversion of funds for alternate use is considered a common enough market practice.

Monitoring of end use of funds is not new to India. Prior to liberalization, the Controller of Capital Issues (CCI) monitored the pricing of issues as well as end use of funds by companies. With price de-regulation however, CCI was dismantled. At present, end-use norms exist for External Commercial Borrowings (ECB). These norms were very stringent to begin with, but have been relaxed over time. At present, only two end-use bars on funds raised through ECBs exist, namely investments in stock markets and in real estate. The proposed CLA would be a part of SEBI and officials claim that SEBI’s disclaimer clause in the prospectus is likely to be dropped, thereby placing direct responsibility on the regulator.

Go to top

Global Data Services, a wholly owned subsidiary of Credit Rating Information Services of India Ltd (CRISIL), after studying accounts of about 639 companies, have revealed that a large number of companies have overstated their profits, while reporting their accounts for the financial year 2000 – 2001. The study shows that of the 639 companies covered, 139 companies overstated their profits, while 87 companies understated their profits for FY 2000 – 2001. The degree of overstating was widest at well over 1000 % from the CRISIL norm, while the degree of understatement was widest at almost 100 %.

According to the Managing Director of CRISIL, Mr. Ravi Mohan, while most deviation may technically be legal in terms of an interpretation of various accounting standards, the deviations have been estimated by Global Data Services/CRISIL in an analytical paradigm. The rating agency launched two new financial products – CRIS Finalyssis and Data Slicing System. The two products were formally introduced by Shri G. N. Bajpai, Chairman of the Securities & Exchange Board of India.

Go to top

The RBI has taken the AC Ganguly’s report seriously and is laying down stringent eligibility criteria for directors of private banks. The RBI says that the bank boards should evolve appropriate systems for ensuring fit and proper norms for directors. These may include information by way of self-declaration as well as market interventions. Director should be between the age of 35 to 65 and should not be a member of Parliament or the Legislative Assembly. The idea is to ensure that the five private banks have responsible and competent directors who have formal qualification, experience, track record, integrity and not prone to attracting risk for the bank.

Go to top

SEBI has made complaints with accounting standards of the ICAI optional for the listed banks for the year ending March 31, 2002. This is in respect of four accounting standards – segment reporting, related party disclosure, consolidated financial statements, and taxes on income. Why the soft peddling on related party disclosure, one wonders?

Go to top