The Bhansali trick

The enormity of the CRB scam is underscored by the CBI’s revelation that the money involved in it is over Rs 1,000 crore. Among the losers are thousands of unwary depositors, nationalised and cooperative banks. By the time the liquidation process is completed and they are able to get back a portion of the money, a few years would have elapsed. If the progress the CBI has achieved so far in bringing a host of fugitives like Amir Bhai, Win Chadha and Quattrocchi to book is anything to go by, CRB chief C.R. Bhansali and his associates will remain at large, catching intercontinental flights at will. In any case, the funds they have stashed away are substantial enough to keep the arm of the law at bay. What is amazing is the easiness with which the promoters of the CRB Capital Markets Limited have been able to defraud the nation. If anything, it shows that the regulatory mechanisms that are supposedly in place to prevent financial skulduggery of the kind have dismally failed. In other words, the country’s financial managers do not seem to have learnt any lesson from the mega securities scam that rocked the nation a few years ago. That the financial system still suffers from the after-effects of the securities scam can be inferred from the astronomical sum of money that the National Housing Bank has recently been compelled to pay to a foreign bank to defray the latter’s sunken investment.

Ordinarily, Harshad Mehta’s stock market exploits and the resultant loss the nation suffered should have opened the eyes of the government to the need to plug the loopholes that facilitated the operations of such characters. But as Bhansali and Co. have shown, all that they needed to cheat the system was a little bit of imagination and some connections in the right places. Small wonder, the State Bank of India whose reputation was tarnished in the security scam finds itself in the dock once again. What’s worse, institutions like the UTI were seen to be eating out of CRB’s hands.

Regulatory bodies like the Reserve Bank of India and the Securities and Exchange Board of India could do precious little to prevent the Bhansalis from perpetrating one fraud after another. In fact, it is the clean chit they gave to CRB from time to time in various forms that enabled them to carry on their fly-by-night operations. Thus, RBI and SEBI cannot but share the blame for the CRB scam.

The government’s response even after the lid was blown off the scam has hardly been confidence-inspiring. Liquidation of all the companies which benefited from the fraud should have been one of the first steps, not only to safeguard the interests of the investors but also to deter future scamsters and their patrons. The very fact that the CBI has been forced to constitute a committee comprising officials of RBI and SEBI to inquire into the scam is a pointer to the CBI’s own lack of expertise in handling such cases. Since speed is of the essence in investigation, the need for a more specialised economic investigative wing that can swing into action the moment a complaint is received cannot be overemphasised. Equally important is a thorough overhaul of the financial system to prevent a repeat of the Bhansali phenomenon.