Sebi raps HDFC Bank: IPO scam, HDFC gets knocked out

Hello fellow bloggers,

I am back with yet another blog and this time its the huge controversy surrounding the IPO scam in the Bombay Stock exchange. and banks that people are trusting are part of the scam.one of india's fast growing bank HDFC has been pulled up for allowing people to create Demat accounts(an account needed to trade on the stock exchange) under fictiuos names so that they can get away from paying taxes to the government and have a greater number of shares which they could sell at a higher rate to investors.the stock market crashed 490 points in one day, when the news broke out about the scam. I will look at the non-market environment under the Baron framework.

according to Sebi's inspection of HDFC's accounts, "From the inspection of DP operations of HDFC bank, it emerged that HDFC bank had failed to exercise due diligence and has opened demat accounts in the name of fictitious / benami entities"

adding to HDFC's problems, the reserve bank of india has levied monetary penalties on them that can hamper their fast growing progress,and they have been barred from opening any more Demat accounts which is a big chunk of their peofits.

the non-market environment surrounding this issue will be discussed as follows.

the issue:
the basic issue here is the illegal workings of a few people, who open fictiuos accounts at banks to gain undue advantage of getting extra number of shares during an IPO and the underlying fact is that, some of the the country's biggest banks are part of this and they do not even have a clue that this is happening. This is an issue that is affetcing a lot of people as this is unethical and not in the interest of the normal functioning of thestock market.

Information:
now the SEBI believes that the banks named in the Scam are part of the scam, as they are getting a small monetary benefit out of it through these fictiuos accounts but all this is talk at the moment is just speculation until this is not proved. The banks are holding the stand that they did not have any information about such illegal practices.

Interest:

the different interested parties in the Scam are the SEBI who are against illegal and unethical practices in money and shares transactions. The people who have created these bank accounts as they could be pulled up into court and jailed for 5 years minimum. The people who have current accounts and demat accounts with the involved banks whose money could be frozen for investigation purposes.
these interest groups mentioned above have to make sure that valuable hard earned money of the people does not disappear as a result of a stock market crash if this scam escalates.

Institutions:

the three clear institutions in this issue are the banks accused of the illegal practices, the SEBI(The Securities and Exchange Board of India) that is investigating the scam, and the RBI(the reserve bank of India) which wants to curb out any illegal practices. These institutions will be fighting each other to investigate the situation and bring normalcy to the stock market.

as a example of the illegal practices, in the article,

Citing an example, Sebi said: "286 Savings bank accounts opened by the key operator (Purshottam Budhwani) with HDFC Bank is clearly proof enough for the plan of action to open multiple dematerialised accounts and channelise the funds in the manner they would bury the audit trail."


Purshottam Budhwami was one prolific bank customer. He had 286 savings accounts under different customer IDs with various joint account holders in various HDFC Bank Mumbai branches. And HDFC Bank, by the looks of it, never knew.



This is one of the key findings of the 252-page interim order released by Securities & Exchange Board of India (Sebi) on Thursday night.

this scam is just gaining steam and escalate into a huge investigation with other big banks coming under the SEBI's scope.

pleasant reading,

siddharth sudhakar

website: http://in.rediff.com/money/2006/apr/28sebi5.htm

article published on: April 28, 2006