Gujarat gold scam comes under RBI probe

Gujarat gold scam comes under RBI probe
STAVAN DESAI

AHMEDABAD, MAR 21: The Reserve Bank of India officials here are investigating the `pay orders' issued by the Classic Co-operative Bank in favour of one K L Choksi, considered to be the king of Ahmedabad bullion market, to the tune of Rs 53 crore in order to purchase gold from the State Bank of India.

The matter came to the fore when on March 15, the cheques issued by Choksi bounced as they showed an adverse balance in the name of the drawer. "Interestingly, these pay orders were issued `across the shelf' to Choksi against cheques drawn on three major nationalised banks. Choksi had drawn Rs 41 crore on the State Bank of India (Service branch), Rs 7 crore on the Bank of India (Maskati market branch) and Rs 5 crore on the Bank of India (Bhadra branch), between March 12 and 14," revealed a senior RBI official. The pay orders were in turn presented for purchase of gold from the State Bank of India.

Such was the goodwill and good faith commanded by Choksi that the authorities of Classic Co-operative Bank found it redundant to even check his financial standings while issuing pay orders of such a high amount.

On sending the cheques for clearance it was revealed that they are not in a position to be encashed. "We accept that we are at fault. Based on Choksi's past record the bank decided to issue the pay orders without checking his latest financial standing," says Dinesh Turakhia, manager of the Classic Co-operative bank, who signed the pay orders.

But Turakhia passes the buck on the State Bank of India saying: "Why did the State Bank of India authorities give gold to Choksi without encashing the pay orders?"

Even the nationalised banks do not provide advances of such a high amount without checking the authenticity of the party. "While providing advances above Rs 1 lakh, we double check the party's financial standing. How can these small banks flout norms and issue pay orders without checking the same?" says a top official of the State Bank of India.

While the RBI officials, including the investigating officer, are tightlipped about the proceedings of the investigations, Turakhia says: "The RBI has instructed us to carry on with our regular transactions and has assured us a speedy solution of the problem."

Regional Director of RBI, V S Das told The Indian Express: "We will look into the matter and will soon learn about the actual scenario."

However, experts in the industry assure that customers of Classic Co-Operative Bank have nothing to worry about as the bank is financially sound and getting all out assistance from the RBI. They have appealed to people against panic withdrawals. As for the king of the Ahmedabad bullion market, he is absconding after declaring bankruptcy.

EEB ADDS: Hopefully, by early next week, the RBI's investigating team may be able to point out whether the cooperative banks had issued payorders without receiving equivalent cash or had debited the accounts of its favourable clients not having sufficient monies in their accounts.

Also, the findings would bring out in the open the quantum of losses suffered by leading bullion banks like State Bank of India, Syndicate Bank, Canara Bank, Allahabad Bank, Corporation Bank and others. These banks are said to be left holding the payorders that are not supported by equivalent value, rendering the payorders in thier books worthless.

Two major players in the Ahmedabad's bullion market are at the centre of the whole affair -- Gitanjali Exports and KL Choksi. Allegedly, the latter was said to have been fronting for the former's aggressive play in the bullion activities. Gitanjali Exports is a leading diamond exporting firm, whose gold related activities are headed by one R Basu.

Desirous of cornering a large chunk of the local bullion market, Basu allegedly got a friend in KL Choksi, both of whom found an innovative way to get a bigger slice of the bullion market. Since last quarter of 2000, KLC was known to be an aggressive seller of gold biscuits (ten tola bars) at around $2-3 (Rs 500-600) per TT bar lower than the market price.

In a sliding market (gold prices have been sliding since the past more than two years) where margins are very thin, this aggressive price difference was considered to be too high. Unable to meet the competition of lower prices of TT bars, majority of the traders were forced out of the Ahmedabad's bullion market leaving the ground open for the duo to play around.

While the then bouyant stock markets partially aided the duo's game plan to corner the market by supplying the TT bars at lower than the market price, the players took advantage of their closeness with some of the cooperative banks to issue pay orders to finance their gold purchases.

The daily volume of bullion trade in Ahmedabad is said to be around Rs 25 crore to Rs 30 crore. This prevents players and banks to transact business through cash, and instead rely on the pay orders. Under normal circumstances, pay orders are issued by banks against either cash or debiting the client's account. Majority of the bullion banks refused to handle large volume of cash, which brought the cooperative banks in the focus of questionable bullion deals.

Banks lose Rs 100 cr in Gujarat gold scam

Mumbai: A couple of aggressive operators in the Ahmedabad's bullion market have milked the banking system using the pay-orders, leading to a scam of around Rs 100 crore.

The quantum of the country's first bullion scam, which may have come to light because of the crumbling stock prices and sliding gold prices, is feared to be over Rs 400 crore, if dealings in the yellow metal of overseas players (having conduits in India) are taken into consideration.

The bullion scam has got some seven nationalised and foreign banks entangled. The RBI is worried about the Rs 75 crore to Rs 100 crore that seem to have been lost by the bullion banks in Ahmedabad, known to be the country's bullion capital. Apart from the leading bullion banks, some of the leading exporting entities too are said to have got themselves entangled in the bullion scam.

At the centre of the Rs 100 crore bullion scam are the pay orders issued by a couple of cooperative banks, including the Madhavapura Cooperative Bank, which went bust recently with the stock market crash. And precisely because of this bank going bust, the five-month old bullion scam surfaced giving clear indication that the bullion players in Ahmedabad have not just been playing the stock markets but were even relying on the latter to fund their bullion operations. Both these operations got entangled somewhere (probably with the crumbling stock prices) leading to the country's first bullion scam.