November 13, 2000

Parekh wins them all
The loss-making Mahindra Realty has got Gesco Corp on a platter, but to cast it in the role of a gallant rescuer is to visualise a knight charging on a lame steed to rescue the fair Gesco. No. The true white knight is Deepak Parekh. First, he bailed out his close family friends of long standing — the Sheths and Muljis of Great Eastern Shipping. Secondly, he was even more generous to his other close friends — the Mahindras. They have acquired control of a good real estate company with excellent assets, armed with Parekhs’ might gift weapon of a quick line of credit. Finally, he took care of himself by ensuring a good return for HDFC on his Rs 30 crore line of credit. Investors too are happy because the counter bid has raised the offer price for their shares. The only question mark is about the fate of Gesco. Will a loss making Mahindra Realty improve Gesco’s performance or lead it on to its own path? The smart investors are willing to watch its moves but only after they have tendered their shares to the highest bidder.

Compliance with RBI report
Remember how RBI governor Bimal Jalan helped bury controversy over an ICICI inspection report by asking people not to read much into the debate triggered off over its findings about inflated profits? ICICI claimed that it had satisfied all of RBI’s queries and the RBI too concurred with this view. But let’s look at what the latest inspection report says even about an earlier inspection in 1998. The earlier inspection was sent to the RBI in October and by December 2 that year ICICI submitted its compliance of the findings. RBI says “The compliance submitted was not found to be satisfactory. Consequently, the Institution was advised by RBI vide its letter dated 9 April 1999 to submit/confirm compliance/clarification on as many as 62 items/issues. The Institution has submitted its second compliance on June 28 1999”. That would be just before the next inspection began. Since the next inspection also found major problems accounting practices and other issues, what does it say about RBI’s compliance requirements?

The bounced SGLs
Incidentally, RBI inspectors have found problems with its treasury operations as well, after two subsidiary general ledger (SGL) receipts had bounced. Apparently, on February 15, 1999 ICICI did not have sufficient funds in the current account with the RBI to honour its purchase of 11.98 pc GOI stock 2004 for Rs 20 crores from ICICI Securities and Finance Company Ltd. It informed the RBI the next day. On June 22, 1999 it happened again. This time it did not have sufficient funds to pay for Rs 35 crore worth of 12.40 pc GOI securities from the British Bank of Middle East. The RBI was not satisfied with ICICI’s explanation and ordered it to ensure sufficient balances and strict compliance with the rules of the delivery versus payment system. Many think that this does not even amount to a proper reprimand.

Stifling the Investor Protection Fund
If the politicians stall disinvestment of PSUs, it is not as though the babus in the finance ministry are less adept at ensuring similar delays. As a part of the amended Companies Act, the government decided to set up an Investor Education and Protection Fund (IEPF), out of unclaimed dividends and interest which is available with companies. That was a year ago. The Fund, which is under the Department of Company Affairs, still shows no signs of getting off the ground because of a fundamental debate: Should the money be credited to the Consolidated Fund of India and then released to the IEPF or sent directly to its account. A simple reading of the amended Companies Act (sec. 205) clearly says that the money has to be directly credited to the IEPF. The government, babus say, has the first right to all money/ property that lapses and nobody can get a piece of the pie except as decided by the finance ministry. The committee itself would not have had any problem with that, except that whenever its members (mostly non government ones) seek advice from senior government babus about which is the better option, it leads to guffaws of laughter. If you want a Fund, they are told, keep it away from the finance ministry otherwise forget about it. Maybe the finance minister ought to look at the touching faith exhibited in the red tape at his own ministry before grumbling about opposition to disinvestment.

Updated weekly.

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

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