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RBI submits scam data to JPC

Kausik Datta & Sambit Saha

The Reserve Bank of India has informed the Joint Parliamentary Committee probing the securities scam of 2001, that as many as 14 urban co-operative banks spread across three states had lost Rs 2.50 billion in the gilts scam.

The JPC is slated to meet next week to take stock of the RBI information. An RBI letter to the JPC said these banks - eight of which are based in Gujarat, four in Maharashtra and two in West Bengal - had lost money in gilts after executing unscrupulous transactions with bond traders.

The apex bank also informed the JPC that the boards of the erring banks were being superseded. The JPC had asked the apex bank to inform it about the magnitude as well as the spread of the gilts scam in the urban co-operative banking sector.

JPC sources believe that funds involved in the gilts scam would be "much greater" than the RBI figure once the amount swindled from the exempted Provident Funds is known.

"Considering that the country's 2,500 exempted PFs manage over Rs 300 billion, our guesstimate is that the total money swindled by the scam would be at manifold of the amount lost by the urban co-operative banks," a JPC source said.

It is still not clear whether the JPC would be asked to investigate the gilts scam, which is currently being looked into by various agencies.

The Union finance minister went on record saying in the Parliament that he personally had no objection in referring the investigation of the scam to the JPC. However, the JPC has not been given the mandate to probe the scam so far.

A section of JPC advocates felt the government should hand over the investigation to the committee as it was already looking into the Madhavpura Co-op Bank scandal. The gilt scam could be a natural extension of that probe, they said.

However, another section feels that mere scrutinisation of books of the 2,500 exempted PFs is a time consuming job, which will hinder the ongoing probe into last year's securities scam.

However, the JPC is unanimous in pointing out that the physical mode of trading was responsible for the scam.

The RBI, it may be mentioned, recently banned gilts trading in the physical form. The move was aimed at plugging loopholes that led to fraudulent dealings in gilts between co-operative banks and bond traders, causing the scam.

They also pointed out that dual authority on co-operative banks had led to this situation.

"They are under the purview of State Co-operative Acts as well as RBI or Nabard. This has led to a regulatory disorder. The regulatory framework needs to be streamlined," JPC sources said.

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