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No failure on part of co-op bank regulators: Sinha

Finance Minister Yashwant Sinha on Thursday said Maharashtra cooperative banks' scam involving Home Trade Ltd and four other brokers was due to "manifestly fraudulent" transactions in government securities and was not reflective of any inadequacy of regulatory guidelines.

"There has been no failure on the part of the regulators as alleged. Detailed guidelines have been laid down by the regulators and violations were detected during inspection and surveillance and prompt action was taken," Sinha said while making a statement in Rajya Sabha on a calling attention on the securities scam in cooperative banks.

These transactions had come to light in course of regular statutory inspections of Nagpur and Osmanabad District central cooperative banks by NABARD (National Bank for Agricultural and Rural Development) and as a follow up on off-site surveillance/market intelligence reports over urban cooperative banks by Reserve Bank of India, Sinha said.

Further scrutiny revealed absence of any investment policy as per RBI guidelines, non existence of concurrent audit/internal inspection system, lack of trained staff and complete failure of the management, especially the board of directors in controlling, guiding and monitoring the affairs of the bank and failure to comply with the RBI guidelines, he said.

Sinha said seven cooperative banks had entered into transactions in government securities involving Rs 2.69 billion and Maharashtra government has filed criminal complaints against brokers/chairmen of five cooperative banks.

He said the cooperative banks had paid the amounts to the brokers purportedly for acquiring government securities but no such securities were acquired or delivered. The transactions involved M/s Home Trade Ltd and four other brokers -- Indramani Merchangs, Syndicate Management Services, Giltedge Management Services and Century Dealers.

In view of the manifest fraudulent transactions in violation of its guidelines and to forestall any further damage by the existing board of directors, Sinha said RBI sought to supersede the board of directors of Nagpur, Osmanabad and Wardha DCCBs and Sadguru Jangali Maharaj and Amravati UCBs under the provision of the Maharashtra Cooperative Societies Act.

The board of directors of these banks, who were elected by its members but had failed in discharging their duties have since been superseded, he said, adding RBI has also asked Registrar of Cooperative Societies of Maharashtra to conduct special audit of investment transactions of cooperative banks.

Securities and Exchange Board of India has also issued orders debarring Home Trade from trading.

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