IT is no longer any secret that the Joint Parliamentary Committee (JPC) investigating the scam of 2001 lost its steam a long time ago, as many had suspected it would. The lack of seriousness was inherent in its very composition — far too many members were sympathetic to specific market operators and corporate culprits. In addition, very few members were interested in plugging supervisory loopholes that are routinely exploited by market operators and industrialists.
Although the committee has sought another extension to investigate UTI and to finalise its report, hardly anything new is expected. If one were to take stock of what the JPC has gathered so far, it is that the entire scam can be divided into two broad segments. One is Ketan Parekh and his operations, along with those of some others such as First Global Finance and Credit Suisse First Boston. The second is the UTI debacle.
The JPC is expected to look at the nature of wrongdoing; recommend regulatory action and punishments. In this, it got the maximum help in dealing with the UTI part of the scam. There are the Tarapore and Malegam reports, which identify what went wrong with UTI, make strong policy recommendations and fix responsibility for its mismanagement squarely on the previous chairman. The JPC will also have the benefit of detailed audit reports for 18 suspect investments identified by the Tarapore committee for detailed scrutiny.
The confusion, if one can call it that, is with regard to the future of UTI and amendments to its Act. The Tarapore and Malegam recommendations strongly contradict each other. Moreover, given a choice, the politicians would probably want to leave the UTI Act untouched despite the two huge bailouts because it has been a convenient quarry for the neta-babu nexus for far too long.
As for the other two regulators, even before the JPC makes its decision, the RBI and SEBI have called for the creation of a super-regulator, which will allow them to shift responsibility and give the impression of moving forward in dealing with the problem of poor enforcement. The JPC should reject this out of hand; there are already two multi-departmental co-ordination bodies that have achieved very little.
Interestingly, it is unlikely that the JPC will pass any serious strictures against either SEBI or the RBI. The RBI and its officials got away in 1992 as well, despite clear evidence that they had ignored the diligent reports of upright officer Augustine Kurias, which had clearly spelt out the lawlessness in different aspects securities industry. This time SEBI is guilty of sleeping over rampant speculation or failing to investigate the colossal volumes of Ketan Parekh.
Had it established an audit trail of transactions across bourses, it wuld certainly have led to Overseas Corporate Bodies (OCBs) and doubtful practices such investment through Participatory Notes issued abroad.
It would also have led to Global Trust Bank (GTB), which formed a sort of hub for Parekh’s financial operations. Every investment company of the Parekh group had an account at GTB and enjoyed generous funding by the private bank. Also, every investment company of the leading K-10 companies banked with GTB allowing funds to move in and out of several companies belonging to Ketan Parekh and his cronies in a single day without anyone getting the slightest inkling about the nature of the deals.
A JPC member, admitting to the lack of seriousness, points to the fact that corporate houses involved in funding Ketan Parekh to ramp up their shares are not even being examined. Ketan’s own interrogation was almost benign. Do we need further pointers to the various lobbies working within the JPC? Similarly, will the JPC ever probe GTB’s close nexus with all of the major players in the scam, and why the RBI failed to detect these shenanigans? In fact, some questions asked in connection with GTB are downright laughable.
For instance, it was asked whether GTB had diverted any funds and if so to whom? Since banks rarely divert funds themselves, the categorical answer was a bland negative. It would have been far more pertinent to ask whether RBI’s inspections have ever thrown up irregularities involving Ketan Parekh and First Global Finance and they would have been in for a surprise.
Former GTB officials say that the RBI annual inspection of GTB in 1999-2000 had clearly documented irregular lending to First Global as well as Ketan Parekh and several others. It had pointed to large write offs, evergreening of accounts and raised several questions about investment companies belonging to the promoter group of GTB.
It had pointed to the fact that these investment companies mobilised large sums of money by way of share application and convertible debentures and used that money to buy shares of GTB. Not only did RBI higher-ups bury the inspection findings, but seemed in an unseemly hurry to grant GTB an insurance license. Would the JPC go into what happens when the RBI fails to act on its own reports?
Indications are that the JPC will wind up its long-drawn hearings by identifying two or three clear targets. These may include UTI, a couple of brokers, to some extent the GTB and some general comments about the regulatory bodies.
Since the government has not made any attempt to even hasten the scam trial through a special court or to identify the scamsters and to prevent them from alienating their assets, chances are that nobody would be in a hurry to frame charges. Trials may not even start for several years. We thought the scam 1992 was audacious. The scam of 2001 was more so. We thought JPC 1992 was docile. The JPC of 2001 looks set to beat it hollow.