January 15, 2001

Diamond industry = Bharat Shah?
During Indira Gandi’s days, the declaration that ‘Indira is India’ was considered the height of sycophancy. The diamond industry’s reaction to Bharat Shah’s arrest smacks of similar sentiments. The industry is getting its timing all wrong. Nobody has cast aspersions against the entire diamond industry and the newspaper advertisements and shut down seem completely unwarranted. In fact, most of the media has been fairly scrupulous in restricting its reportage on Bharat Shah’s arrest to his activities in the film financing business. By making the arrest a diamond industry issue, the business which thrives on secrecy is only attracting attention to itself. It its case, silence may be the better part of discretion and it has much to be discreet about. For instance, the number of times last year when some trusted Angadias made off with diamond or money. Or, the controversy surrounding the Bharat Diamond Bourse, which stands a like a huge, shadowy ruin in the middle of the spanking new Bandra-Kurla financial centre. The industry should get ready to answer these and other uncomfortable questions in the near future.

Fund management
The market regulator, SEBI is apparently a good fund manager too. According to a news report, 91 per cent of its net profit of Rs 21.83 crores for the year ended March 2000 was earned through treasury operations. SEBI has Rs 147 crore of investible funds which go into corporate bonds, debentures and inter-corporate deposits (ICDs). On reading about SEBI’s investment skills a wag immediately declared that he would ferret out SEBI’s portfolio and copy its investment portfolio. The regulator, he said should be able to pick up the safest bonds, debentures and ICDs to invest in. Seconds later, wisdom dawned — ‘A regulator does not necessarily have to be the best picker of debt investment companies would not dare to cheat the regulator”. Maybe. SEBI’s investment skills are still good news. If it does not win the broker registration case, its treasury operations could pay for office space, foreign trips and the expensive Edgar type data base estimate to cost a whopping Rs 75 crores. On the other hand, the Government of India, which has given SEBI Rs 105 crores worth of interest-free loans is also likely to ask for a return on its investment.

Simple exits
It is ironic that the Parliamentary Standing Committee on Finance should also joint the chorus and ‘flay’ financial institutions (FIs) on NPAs. It is true, that the institutions are guilty of large-scale evergreening of accounts, that they have failed to force guarantees and succumb to pressure — but isn’t the pressure usually from politicians who comprise such committees? In fact, the Rankas of the Modern Group have been showing how easy it is to raise money and avoid repayments. A few years ago, the group flourished and went into a frenzy of starting new ventures and borrowing more money. A former chairman of its lead institutions — the Industrial Finance Corporation of India (IDBI) went out of his way to help the group. The friendship and blessings of a regulator also helped its case. Finally, when the FIs had little option but to write down the loans, they moved court to invoke the personal guarantee of the promoter in one of its companies. He managed to get a stay order. In the meanwhile, the company declared itself sick and moved the BIFR. All that remained was the stock exchange listing, where the stock price (quoting at a few paise) acted as a reminder of shareholder disgust. This was taken care of by not paying listing fees. Pronto, the company is delisted and disappears from the public eye; the institutions can continue to stew. If parliamentary committees and the Reserve Bank are serious about cutting NPAs, they have to first improve the debt recovery system and pin specific responsibility on individuals who sanction and justify bad loans.

KBC: round two
Here is a fresh input on the Kaun banega chairman game that is on at the IDBI. The head of one institution is understood to have told the finance ministry that all the three individuals short-listed for the post of Chairman and Managing Director are too junior to be entrusted with the job. His suggestion: split the post into two and to make him non-executive chairman of IDBI. This would easily make him the most powerful man in the financial sector. A senior secretary’s allegedly reacted to this saying that if seniority is such an issue, he would be willing to do a stint at IDBI. Frankly, we think that this particular Secretary may in fact be the best thing to happen to IDBI in a long time.

Updated weekly.

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

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