MUMBAI, March 13: Even though the Reserve Bank of India (RBI) has discouraged several takeovers bids on private banks recently, it seems that a group of stock-brokers have acquired substantial control of Kozhikode-based Nedungadi Bank. Rajendra Banthia, leading stock broker and a director of the Bombay Stock Exchange, has already acquired nearly seven per cent stake in the bank. Sources said the Banthias control another 7-8 per cent equity stake, but bank chairman A R Moorthy denied any knowledge about the additional holding but admitted that Banthia has emerged as a major shareholder in the bank.Not only this, Banthia has managed to get his two nominees -- BSE president M G Damani and another BSE director Suresh Vaidya -- on the board of the bank. It may be recalled that the proposal of the BSE to float a private bank was rejected by the RBI last year. Apart from the multi-crore securities scam which rocked the financial system in 1992, the CRB scam also went against the BSE proposal to float a privatebank.
Moreover, the RBI has rejected the takeover proposal of two major private banks in the recent past. The five-year old bid of the Bangkok-based NRI group to take over Catholic Syrian Bank has not yet been cleared by the RBI.
Similarly, RBI also rejected the proposal of the Essar group to acquire Tamilnadu Mercantile Bank. The central bank had also thwarted the transfer of shares of Sangli Bank, a private bank in Maharashtra, acquired by the ISPAT group.
When the RBI announced its plan to allow more private sector banks as part of the financial sector reforms, several industrial groups acquired these bank shares on the assumption that the central bank would allow some of them to take management control. ``When more than 7 per cent of the bank shares is to be transferred to any new shareholders, we will see whether the new management will benefit the bank in any way. Of course, the prime concern is the interest of depositors,'' said an RBI official. While the Nedungadi Bank chairman claimed that theshares are already transferred to Banthia, his relatives and Damani, acquiring shares in benami names itself was opposed in some other cases. ``We will have to check up whether the shares are actually transferred in their names,'' RBI official said.
The state of affairs at some of the private banks acquired by private promoters in the last few years leaves much to be desired. The RBI has detected several irregularities in the functioning of Bank of Rajasthan (BoR) which was taken over by the Bangurs. The latter is also facing charges of FERA violation in addition to charges of fund diversion from BoR through shell companies. The origin of the multi-crore securities scam goes to the diversion of bank finance to the stock market through a nexus of brokers, bankers and middlemen. After the scam broke out the central bank had taken several measures to ensure that the same saga is not repeated. ``There is no question of bank money going to the stock market again as happened during the securities scam. BhupenDalal was the only stock broker who had control over Bank of Karad. Harshad Mehta did not have any control over any banks,'' said the RBI official about the possibilities of stock brokers diverting fund to the market again.
P Rajarathinam, who took over several companies in the early 'ninties, acquired a major stake in Benares State Bank, but some of the transactions involving Rajarathinam had raised eyebrows. The ownership of Rajarathinam's holding in the bank has become a grey area after the income-tax authorities attached his shares for IT defaults. Moreover, State Bank of India's Chennai office has filed a case against Rajarathinam and other directors of Apollo Tubes & Steel Industries -- acquired by Rajarathinam some years ago -- for defaulting a loan for Rs 16.25 crore. The RBI has also rejeced the applications of industrial houses like the Birlas, ITC and the Tatas for setting up private bank as the central bank's policy is against allowing business houses and manufacturing concerns to operateprivate banks. ``It is easy to divert funds from the banks to the private purposes of promoters. A major reason for nationalisation of banks in the late sixties was massive diversion of funds from private banks to the private businesses of promoters,'' said a banking source.
Nedungadi Bank chairman AR Moorthy told the The Indian Express recently that the entry of Damani and Vaidya follows the bank's decision to ``broadbase'' its board of directors. ``We need to have more people from outside the State in the board to aid our plans to expand branch network,'' he said.Nedungadi Bank is one of the oldest private sectors banks in India which used to finance the small scale sector and petty traders since its origin in 1899. While the bank was traditionally controlled by individual shareholders (who once held more than 93 per cent stake), a set of stock brokers seems to have taken control over the bank leaving many in the banking circles bewildered.
Many of the Kerala-based private banks are vulnerable fortakeover as happened in the case of Catholic Syrian Bank. In the case of Federal Bank, the number one private bank in the state, ICICI acquired 20 per cent stake. FIIs too have considerable stake in other such banks.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
