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This scam took place in the years 1992-1996, the period immediately following the Harshad Mehta fallout.

This makes the scam even all the more daring and surprising. CR Bhansali, the perpetrator of this scam, floated more than 100 companies, such as CRB Mutual Funds and CRB Capital Markets. The primary purpose of these companies was to attract huge funds from the public by promising high rates of interest. This interest was later paid form further borrowings, and so on. In 1995, the stock market collapsed, and this proved to be the undoing of CR Bhansali. He was investigated, and later arrested. After a brief 3month stint in jail, he has disappeared without a trace, and nobody is asking! The scam involving the CRB group has cast its long shadow on other small non-banking financial companies (NBFCs) stocks. Stockmarket circles are agog with rumours that a fund flight is expected in some of the smaller companies. Despite some stray occurrences where investor groups have threatened to pull out funds from NBFCs, till date nothing drastic has happened. Analysts say that certain fly-by-night operators offering high returns to the investors may find the going tough if there is any large scale withdrawal of funds. Following the CRB fiasco, the RBI is bound to closely monitor the activities of the NBFCs. This will definitely have an impact on the performance of these companies, said a dealer with a top corporate broking house. On the whole, the NBFC industry is facing rough weather on account of cut-throat competition, falling interest rates, reduced spreads and more importantly, stringent accounting norms prescribed by the RBI. Market sources are of the view that the NBFCs will now be more careful before they venture into new activities. Capital market sources emphasised that the CRB controversy does not mean doom for the entire industry. The finance companies associated with big industrial groups will continue to be crowd-pullers due to high interest rates and the perceived safety' of investments. A leading institutional broker said, As far as big players in the fixed deposit business are concerned, they have an established brand image and may be temporarily affected due to the CRB fiasco. This is a classic case of last in and first out. In future, people will be cautious while investing in fixed deposits. An analysis provided by the Business Standard Research Bureau team stated that among the second-level NBFC counters, the losers included Alpic Finance (lost Rs 6 over its previous week's close), Anagram Finance (lost Rs 2 during the same period) and Prudential Capital (lost Rs 2). One of the NBFC counters which gained ground marginally was the Apple Finance stock which rose by 50 paise over its previous week's close of Rs 11.95.

HIGHER returns invariably carry higher risks. Indian investors, long used to the cosy security of depositing their savings in state-owned banks, have lately learned the truth of this maxim. Some may end up paying dearly for the tuition. One of the countrys largest finance companies has collapsed, and fear that its wake will swamp others has brought scenes of panic as depositors rush to withdraw money. The finance companies are creatures of the economic liberalisation that began in 1991. They have multiplied thanks to lax regulation. There are now 40,000 of them, selling a gamut of financial services, from leasing to consumer loans. Together they have 200 billion rupees ($5.6 billion) in term deposits. Much of this sum has been collected by commission agents in Indias most far-flung corners, who are rewarded for their success with gold coins and cars. According to Prithvi Haladea, head of Prime Database, a research firm, finance companies have also raised 50 billion rupees in the capital markets over the past four years. Until recently, Chain Roop Bhansali was one of the stars of the business. He built a financial empire in the span of four years, controlling a mutual fund, a securities house (a joint venture with a South Korean conglomerate, Daewoo), a merchant bank, a sharecustodian services firm and a host of property companies. The CRB group managed over 1 billion rupees in investments and deposits, with almost no regulatory supervision. It even secured approval to set up a commercial bank last yearat the same time as the Securities Exchange Board of India, the capital-markets watchdog, was blocking the expansion of its mutual-fund company. Shortly thereafter, the Reserve Bank of India, the central bank, examined the books of the flagship company, CRB Capital Markets, for the first time, and unearthed irregularities involving a maze of investments in associate companies. A full investigation began and Mr Bhansalis plans for a bank were stalled. None of this was made public. Mr Bhansali was allowed to keep taking deposits, and even issued 40m rupees in bonds. Then, in March this year, the State Bank of India discovered that it been defrauded of nearly 470m rupees, which it had paid out as a dividend to CRB Capitals investors. It took the matter to the Reserve Bank of India, which in April blocked new deposits, froze CRB Capitals assets and revoked its approval to set up a bank. Mr Bhansali fled the country. He was nabbed in Hong Kong this week. The Reserve Bank has moved to liquidate CRB Capital. Two more companies with which Mr Bhansali was associated, Global Finance and Kiev Finance, closed last week. Depositors, who are entirely uninsured, may well lose much of their savings. Other finance companies claim that CRBs problems are unique. That seems unlikely. The entire finance sector earned huge returns in the booming share and property markets of 1993-94. A downturn in these markets over the last two years has changed all this. CRB, for example, saw the value of its investment portfolio drop by nearly 30% since

late 1995. Other finance companies sank huge sums into Indias film industrythe sort of investment that can produce outlandish returns occasionally, but not continually. Even in the heady early days it was apparent that the finance companies were growing well beyond the reach of regulators. Almost no capital was required to enter the business. The Reserve Bank was nearly powerless to regulate the industry. It won broader authority only in April, just weeks before it ordered the closure of CRB Capital. Now, an urgent examination of the finance-company sector is under way, with much talk of imposing stiff capital requirements and creating a deposit-insurance scheme. For millions of unwary depositors, that may come just a bit late.

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