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JPC pulls up 4 banks for discrepancies

BS Economy Bureau

The Joint Parliamentary Committee probing last year's stock scam has pointed out discrepancies in the conduct of business by Bank of India, Madhavpura Mercantile Co-operative Bank, IndusInd Bank and Nedungadi Bank.

In it draft report, it has found evidence pointing to a collusion between IndusInd Bank and the Calcutta Stock Exchange to delay the knowledge that four cheques amounting to Rs 153 million had been issued by brokers with inadequate funds.

"The committee note that delayed intimation regarding the dishonouring of four cheques amounting to Rs 153 million by the IndusInd Bank to CSE resulted in making a pay-out by the CSE under the mistaken belief that the cheques had been duly credited and this in turn precipitated the payment crisis which took place at the CSE," the draft report said.

"Though both the CSE and the IndusInd Bank have put the blame on each other, but the fact that the bank in this case did not return the dishonoured cheques to the margin department of the exchange, transgressed from the customary banking practice of sending the cheques back to their clients within 24 hours and instead sent their representative to the president of the stock exchange and then abided by the advice given by him to withhold the cheques, leads suspicion towards the role played by the bank as a professional banker," it added.

Likewise, it can also not be accepted that the officials of CSE were totally ignorant more particularly when the in one of the letters, there executive director himself admitted the fact that the representative of the bank had contacted their vice president who had in turn advised him to see the president and give the list of member together with the amounts to be debited, the report said.

The JPC has recommended that Reserve Bank of India frame specific norms to all clearing banks regarding the procedure to be followed for dishonoured cheques from stock exchanges.

In addition, the JPC has recommended that apart from proceeding expeditiously with criminal proceedings against Nedungadi Bank's chairman, criminal action should be initiated against directors of the bank's board and senior manager in the investment cell for having committed a breach of trust and causing wrongful loss to the bank.

The draft report has also recommended strict action against the auditors "who failed to discharge their duties" and censuring the RBI nominee on Nedungadi Bank board for not taking adequate and timely action to ensure that the malpractice was not stopped.

While expressing concern at the decision of Nedungadi Bank management to embark on a scheme of arbitration to take advantage of the price differential between National Stock Exchange and the Bombay Stock Exchange and other bourses, the draft report also said that said the bank's board comprised brokers who had substantial stake in the bank.

Its directors had acted in an unethical manner by sanctioning huge advances to their kith and kin which turned into non performing assets. The JPC also pulled up RBI for being a "silent spectator" to the events and said the central bank failed to discharges it regulatory function.

The report said, "There was an attitude of apathy on the part of RBI with the result that funds were manipulated and misused by a few brokers who alone had a turnover of about Rs 13.50 billion to their sole advantage during the relevant period."

Bank of India had overlooked some rules and procedures that had been laid down, the JPC said adding that it was "extremely unhappy that the management did not care to hold all those responsible who were at the helm of affairs and were more responsible to ensure that the bank functions on prudent business principles and the direction of the apex bank are followed stringently".

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