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CRB SCAM

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Man behind CRB scam

Born in a jute trader's house in Rajasthan raised in Kolkata.

Commerce graduate , completed Chartered Accountancy in 1980.

Also acquired other degrees like ACS, Ph.D., MIIA (US) and a diploma in Journalism.

1980: started a financial consultancy firm, CRB Consultancy in Kolkata.

Moved to New Delhi to join one of the country's leading registrars of companies.

1985: Established 'CRB Consultants,' a private limited company in New Delhi.

1992: The name of the company was changed to CRB Capital Markets (CRB Caps) and it wasconverted into a public limited company.

CRB Caps was also very active in stock-broking having a card both on the BSE and the NSE.

Then followed mutual fund (CRB Mutual Fund) and CRB Share Custodial Services . 1992 to 1996 : collected money from the public through fixed deposits, bonds and

debentures, mutual fund schemes. In mid 1990 he wrote a book Making Difference

2

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What is CRB scam?

Scam in Indian Financial system.

CRB Group

of Companies

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CRB group of companies

First came the finance company (CRB Capital Markets), The company raised over Rs.176 crore from the public by January 1995.

A+ rating given by CARE and upfront cash incentives of 7-10% attracted investors.

CRB Mutual Fund

In August 1994 , Bhansali launched CRB mutual funds, which raised Rs.230 crores through

Arihant Mangal Growth Scheme.

CRB Share Custodial Services followed.

CRB share custodial services raised another Rs.100 crores in January 1995.

CRB Corporation Ltd raised another Rs.84 crores through 3 public issues.

Between 1992 and 1995, in the post-Harshad Mehta scam (bear phase) he managed to raise close toRs 900 crore.

CRB Caps Networth grew from Rs.2 crores in 1992 to Rs.430 crores in 1996 this finally rosesuspicion.

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Schemes and Policies

CRB Capital market ltd. offered various schemes like merchant banking , leasing and hire purchase , billdiscounting and corporate funds management , fixed deposit and resources mobilization , mutual funds andasset management , international finance and forex operations.

He floated around 133 subsidiaries and unlisted dummy companies and money was transferred to thesedummy companies.

CRB Share Custodian invested Rs.15 Crores in CRB Mutual Funds. CRB Corporation invested Rs.16 crores inCRB capital markets.

Market value of CRB caps investments rose from Rs.76 crores to Rs.109 crores in 1995-96.

Global outlook and timely foreign collaborations were also responsible for its success.

Rigged Share prices through own money

The Financial Wizardywas made possible with the help of Bhansalis trusted firms of auditors D P Bhaiya & coand Jain & Swaika-both old friends from Calcutta

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How fraud happened?

Dummy Companies. Bhansali move to Delhi for set up of his empire.

CRB Capital MarketsJanuary 1995, raising a total of176 crore in three years, compared to Kotak MahindraFinance, a leading finance company, who over the same period raised less than Rs. 80 crore

CRB Mutual funds

In August 1994, raised Rs 230 crore from the market through its Arihant Mangal CRB Growth Scheme.Another Rs.180 crore was raised from investors through fixed deposits.

CRB Corporation LTDwas originally set as a granite manufacturing companyby Bhansali, but much of its activities were in finance area.This company raised Rs.84 core through threepublic issues between May 1993 and December 1995.

CRB Share Custodial Services:another ofBhansalis company raised a further Rs.100 crore in January 1995 to set up operations.

In the space of five years between 1992 and 1995, Bhansali managed to raise a total ofclose to Rs. 900 crore from the capital markets (when the market was going through thepost-Harshad Mehta bear phase) and he became the chairman of the top three financecompanies in India.

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Nagpal Story

Investor:Varun NagpalOffending firm: CRB GroupOffence: CRB did not maintain reserverequirements; the Reserve Bank stopped it fromraising fresh deposits. Cheques bounced. CRB shutdown its offices.Hole in the pocket: Rs 11.5 la (approx.)

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Mohini Donde Story

Mohini Donde (72), aretired supervisor fromBEST.Donde -Rs. 1.5 lakh

Her mother -Rs. 56000Herhusband-Rs 30000

son Rajeev -Rs.20,000.

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Defrauding the SBI

In May96 current account opened in SBI s Mumbai branch

Only current account facility granted

No overdraft allowed

Dividend warrants treated as demand drafts

For about nine months all went well

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SBI Findings

However in March97 SBI discovered the fraud

Bhansali was investigated immediately

SBI accused Bhansali of printing 1800 fake dividendwarrants

Bhansali used fake accounts in Chennai, Calcutta and

Rajasthan to withdraw these dividends

CRB Caps had an outstanding liability on 50 crores

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Bhansalis Justification

Overdrawn money was used to repay principal to thefixed deposit holders

Bhansali claimed he had no fraudulent intentions.

Lawyer insisted that the account was an ordinaryone.

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The Systemic Rot

Lack of communication between the banks, RBI and the

government officials

Blame game between RBI and SEBI

RBI claimed that it had no power to examine the asset

quality

In Dec94 SEBI conducted a routine investigation

Chitale Report presented in Jan95

9 months ban on CRBMF

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Continued

Oct96 TFCI lodged complaint against CRB Caps

In Nov96 first interim show-cause notice issued by RBI

2 months inspection took place

In Feb97 final show-cause notice issued

April97 ban on CRB on collection of further funds

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The Aftermath

Far reaching impacts on the economy

Declining investor confidence in banks

Poor performance of NBFCs

Making investors more aware

Creation of smart investors

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The Central Bureau of Investigation (CBI) locked and sealed

the offices of the CRB Group.

Arrested six persons, including four directors (two fromBikaner and two from Mumbai)

The CBI also conducted simultaneous searches at 16 variousplaces.

The CBI froze the bank accounts of the group companies andseized incriminating files and other documents from the

residence of the vice-president.

Following rumors that Bhansali had fled India and washiding in Hong Kong or Canada.

The CBI sought Interpol's assistance to trace him.

ROLE OF CBI

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The collapse of the CRB group seemed to be a fraud allowed bysupervisors despite the regulations in place.

Lack of clear communication channels between the banks, RBI and

the government

Frequent clashes occurred between RBI and SEBI in the media,

The RBI claimed that it had no powers to examine the asset quality

of the CRB group

The bank further claimed that the powers were granted only in

March 1997, when the RBI Act of 1934 was amended to

include specific provisions for the purpose.

.

ROLE OF RBI

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At one point, the Union finance ministry held a meetingeveryday to solve CRB fiasco.

In a meeting with SEBI, the finance minister criticized the

regulator severely

The government asked the RBI to prepare a panel of auditorsasking to explore the possibility of making auditing ofNBFCs a prerequisite to registration.

ROLE OF GOVERNMENT

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In October 1998, the SEBI appointed an administrator forCRB's Arihant scheme finalized a scheme for payment to theunit holders.

Under the scheme, the investors were prematurely paid Rs 4.95

per unit, which was its NAV as of 31 March 1998.

When the administrator had taken over, the assets of thescheme comprised the fund's frozen bank accounts worthRs 81 lakh, plus some dividends from investments.

There were a large number of listed (but thinly traded) and unlistedshares amounting to Rs 17.5 crore.

ROLE OF GOVERNMENT

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Measures taken by various bodies(SEBI,SBI,GOVT,CBI)

1) A high level committee comprising the RBI Governor, SEBIChairman, Finance Secretary was created.

2) A Serious Frauds Office will be set up under the Department of

Company Affairs

3) The SEBI first got its teeth after the scam.

4) Chairman of the insurance regulator has been included and his rolemay be enhanced.

.

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The (CBI) set up an Advisory Board on Banking,Commercial and Financial Frauds (ABBCFF) that isheaded by a retired Deputy Governor of the RBI to help itcrack corporate crime more efficiently.

RBI set up the Department of Supervision.

Measures taken by various bodies(SEBI,SBI,GOVT,CBI)

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Effects on Indian financial system

1) Debt market got affected

2) This event have impacted the sentiment and trust of investors in theIndian financial market.

3) Scam leaves the Initial Public Offerings (IPO) market dead

4) An investor population stagnant at the official figure of 19 million

5) One of the senior official says that efforts to revive investor confidencehave flopped because government measures have failed to matchthe investors own perceptions about the main cause of his woes.

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