BoR promoters hiked stake through fraudulent means: Sebi
More skeletons have started tumbling out from the cupboards of Bank of Rajasthan (BoR) promoters. Close on the heels of the RBI move to slap Rs 2500000 fine on BoR and appoint two auditors to inspect the books of the private sector bank following detection of several lapses, market regulator Securities and Exchange Board of India (Sebi) has banned 100 entities belonging to the Tayal Group (BoR promoters), and its assciates the Yadav Group and the Silvassa Group from the securities market until further orders for fraudulently hiking stake in the bank. Meanwhile,BoRs promoter P K Tayal said the group has not made any inter-firm fund transfers to acquire shares in the bank,refuting the charges levelled against it by Sebi. Terming the Sebis allegations as a misunderstanding,Tayal claimed that the groups shareholding in BoR was 28% and not 55% as mentioned in the Sebi order. The promoters of BoR have publicly announced that their stake has been coming down from 44.18% as of June 2007 to 28.61% by December 2009 which was clearly false. This evidently conveyed a misleading picture to investors,stock exchanges and to Sebi, the regulator said in an order. While the promoters apparently conveyed the impression that they were reducing their shareholding,they did not in fact dilute their controlling stake in BoR. Indeed on the contrary they had actually increased their shareholding in a deceptive and fraudulent manner with the active connivance of others, Sebi said. It was planned in such a way that on paper their holding seems to have reduced but in reality,the holding of the promoters (controlled by the Tayal group) along with their front entities,had actually increased from 44.71% in June 2007 to 60% by March 2008 and stood at 55.01% by December 2009. No disclosures related to acquisition were made to the stock exchanges by any of the acquiring groups or by BoR at any time over this extended period thereby providing misleading information to the investors in the scrip. In fact,the promoters of BoR and their connected entities have been trading in the shares of BoR without any disclosure to this effect to either the public or the stock exchanges, the Sebi order said. The regulator also asked the National Securities Depository and Central Depository Services to freeze the beneficial owner accounts of these entities. The RBI,which inspected the books of BoR,provided details of movement of funds from the Tayal group to certain domestic corporates which were termed as front companies of the Tayal group. The Sebi investigation followed the trail of funds provided in the RBI reference and examined the movement of shares,whether on-market or off-market,for all named entities,including those prima facie found to be connected to the Tayal group or other front entities,it said. The modus operandi,according to the Sebi,was as follows the promoters and Tayal group entities had made fund transfers to the entities in the Yadav group to purchase the shares of BoR from the open market. Later,the Yadav group entities made off-market transfers to the promoter related Silvassa group entities,which are located at the offices and manufacturing facilities of various other Tayal group companies. Thus,the Yadav group and Silvassa group were acting in concert with the promoters of BoR to disguise the actual stake of the Tayal group in BoR. The artifice outlined above of disguising the ownership structure apparently also seems to have superficially resulted in compliance with the guidelines issued by RBI on ownership and shareholding, Sebi said. The RBI guidelines on private bank ownership are very clear. In the interest of diversified ownership of banks,the objective will be to ensure that no single entity or group of related entities has shareholding or control,directly or indirectly,in any bank in excess of 10% of the paid up capital of the private sector bank. Any higher level of acquisition will be with the prior approval of RBI and in accordance with the guidelines of February 3,2004 for grant of acknowledgement for acquisition of shares, RBI guidelines say. This is not the first time Sebi has taken agains the Tayals. In an order dated September 7,2007,certain entities related to the Tayal group were debarred from dealing in the scrips of JTREL and KSLIL,both companies of the Tayal group. Meanwhile,BoR shares closed 6.66% down at Rs 62.35 on the BSE on Tuesday. Who owns BoR? Mumbai-based Tayal Group,led by Pravin Kumar Tayal,acquired controlling stake in Bank of Rajasthan after a stiff battle with the Bangurs in 1999. The group is also known as Krishna Group of companies. PK Tayal and his brothers Navin K Tayal and Sanjay K Tayal run various group companies. PK Tayal was chairman of the bank until 2004 but he stepped down from its board in 2006. The bank currently has no chairman. Sanjay Kumar Tayal and Dhirendra Kumar Tayal are on the BoR board. PK Tayal was once arrested in 2003 for non-delivery of shares but the court later cleared him in the case. Sebi had in 2003 banned the Tayals for lapses involving KSL Industries in a public issue funding How big is the bank? As on March 31,2009,the banks deposits amounted to Rs 15,1870000000 and advances were Rs 7,7800000000. BoR made a loss of Rs 44.700000000 during the quarter ended December 2009 as against a profit of Rs 49.210000000 in the same period of last year. Gross non-performing assets of the bank also moved up from Rs 149.90000000 to Rs 232.380000000 by December 2009. The bank has a network of 463 branches (March 2008) Why is it under scrutiny? RBI Its under RBI scrutiny under Section 35A of the Banking Regulation Act,1949,in the area of acquisition of immovable properties,deletion of records in the banks IT systems,non-adherence to know your customer/anti-money laundering guidelines,etc SEBI Promoters apparently conveyed the impression that they were reducing their shareholding,but they did not in fact dilute their controlling stake in BoR. On the contrary,they had actually increased their shareholding in a deceptive and fraudulent manner with the active connivance of others Action taken by RBI and Sebi and #149; RBI has slapped Rs 2500000 fine on the bank and appointed two auditors to inspect the books of the bank and #149; Sebi has banned the Tayal group and associates from the securities market for fraudulent share transfer What happens now? If the RBI detects major irregularities in a bank,it has the powers to change the management and promoters or allow the takeover by another bank. Sebi,on ther other hand,is expected to come out with a final order after getting the reply from the Tayals. If Sebis charges are proved,the Tayals could face ban from the market for a specific period and/or penalty