Different Strokes by Sucheta Dalal

March 06, 2000

Governor takes over

Now that RBI Governor Bimal Jalan has become aware of Bombay Dyeing having fudged documents to raise Commercial Paper (only to avoid cumbersome delays, says the company) in 1998 (as reported by this paper) he has personally called for explanations, met officials of the concerned departments and demanded action. Deutsche Bank, which initially reacted to our inquiry with a curt denial has been issued a letter by the RBI censuring it for carelessness. We had reported that in 1998 Bombay Dyeing had, on six occasions, simply used old IPA documents, erased details such as the date and the amount to be raised, photocopied the fudged documents and submitted them as fresh ones. The company claimed that this was done merely for convenience and the documents were substituted with genuine ones. It also says that the cash-credit limits available to it had never been breached. The RBI inspection had however slammed the company for the fudging. Bombay Dyeing had confessed to the fudging and offered a written explanation to Deutsche bank. Interestingly, the RBI had never bothered to complete the investigation by verifying whether the cash credit limits were in fact breached. The matter would turn significantly more serious if a single instance of having breached the cash-credit limit is found since it would indicate borrowing beyond its sanctioned limits. It remains to be seen if the Governor’s intervention leads to a complete inspection or a mere relaxation of the CP rules.

The new man at SEBI

He is not exactly new at the SEBI. In fact, as one of the independent directors of the Securities and Exchange Board of India (SEBI) he headed some really sensitive committees. But an outside director is different from a full time member. J R Varma’s appointment as Member has triggered off incessant discussion and debate among top SEBI officials. As the number two man in the organisation, he changes the pecking order and causes a demotion of all the Executive Directors (ED) by one level. But will he be given specific portfolios or will be he a sort of overall Number two? If he has independent charge of certain departments, will the EDs who handled his portfolios report to him as well as the Chairman? And above all, what kind of working relationship will the Chairman have with Mr Varma? Mr Varma may have shared the market views on badla trading and the need for it, but he is no pushover. He has a mind of his own and very willing to speak out. Interestingly, Varma does not believe in excessive regulation and thinks that the powerful Securities and Exchange Commission (SEC) of the US goes overboard on market regulation. These views should ensure him a warm welcome from all market intermediaries, but hang on. He may not be in favour of excessive regulation but he is unlikely to support weak and ineffectual punishment of wrongdoers either. What seems certain is that SEBI and the capital market will see some interesting times.

A standing committee on takeovers

While on SEBI, the perpetual life given to the Justice Bhagwati committee on takeovers is beginning to vex its own members. One member tells me that the takeover committee is turning into a standing committee, with the result that takeover regulations have tended to remain open-ended and full of loopholes. Every few months a new issue is placed before the committee for consideration because officials find that easier than interpreting existing guidelines. At the last meeting of the committee a new issue came up for discussion. Some members expressed the apprehension that venture capitalists would use the concessions granted to them to help companies avoid making an open offer to retail shareholders in a takeover bid. Some feel that in granting far too many concessions to venture capitalists it has opened the door for their misuse.

Updated weekly.

The author's e-mail address is: suchetadalal@yahoo.com

Other columnists:

M.V.Kamath

Shashi Tharoor

SuchetaDalal

Shobha De

Amrita Shah

Nina Pillai

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