CASE STUDY ON: CRB SCAM

Presented By: MALAY PANCHAL:53 BHAVESH PARMAR:56

What does the case study cover?

The scams in the Indian Financial Sector and the modus operandi of the CRB group of companies. The role of the regulatory authorities in the CSB scam.

The case is intended to give a detailed insight into the frauds committed by the CRB group of companies. The case examines how the CRB group was able to defraud the investors and the regulatory authorities with ease. The role of RBI and SBI is also explored.

Every single drop of my blood is for the depositors. -Chain Roop Bhansali in 1997

About Bhansali.

Schemes and Achievements:

CRB consultants-New Delhi 1985. CRB Capital Markets (a public ltd co.)1992.

Schemes:

The company offered various schemes like merchant banking , leasing and hire purchase , bill discounting and corporate funds management , fixed deposit and resources mobilization , mutual funds and asset management , international finance and forex operations. CRB caps was also very active in stockbroking having a card both on the BSE and the NSE.

Success Story:

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 in hordes to Bhansalis schemes.

CRB Corporation Ltd raised another Rs.84 crores through three public issues between May 1993 and December 1995. CRB share custodial services raised another Rs.100 crores in January 1995. In August 1994 , Bhansali launched CRB mutual funds (CRBMF) which raised Rs.230 crores from the market through Arihant Mangal Growth Scheme.

Media analysts pointed out that the groups global outlook and timely foreign collaborations were responsible for its success. CRBs joint ventures with Daewoo Securities and Keystone Group met with reasonable success. In mid 1990s , Bhansali came out with the book extolling his virtues and achievements titled Dr. C R Bhansali-Making the Difference.

The Man and the Mess!!!!!!!!!!

Suspicions arose when CRB caps networth grew from Rs.2 crores in 1992 to Es.430 crores in 1996 It was in mid 1996 that reports regarding frauds being committed by the RBI group began appearing in the media. An FIR was filed against CRB as per section 120B read with section 420 of the Indian Penal Code and section 13(2) read with section 13(1)D of the corruption Act.

Bhansali Was Charged With Fraud, Cheating , And Siphoning Off Of Funds From SBI.

The Modus Operandi:

Dummy Companies. Rigging Share prices through own money.

CRB Share Custodian invested Rs.15 Crores in CRB Mutual Funds. The latter held 24 lakh shares of CRB Corporation which again had a Rs.16 crores investment in CRB capital markets. As a result CRB caps reported that the market value of its investments rose from Rs.76 crores to Rs.109 crores in 1995-96. CRB corporations income more than doubled between 1994-1996.

The Financial Wizardy was made possible with the help of Bhansalis trusted firms of auditors D P Bhaiya & co and Jain & Swaika-both old friends from Calcutta.

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

SBI s findings

However in March97 SBI discovered the fraud Bhansali was investigated immediately SBI accused Bhansali of printing 1800 fake dividend warrants Bhansali used fake accounts in Chennai, Calcutta and Rajasthan to withdraw these dividends CRB Caps had an outstanding liability on 50 crores

Bhansalis Justification

Overdrawn money was used to repay principal to the fixed deposit holders Bhansali claimed he had no fraudulent intentions Lawyer insisted that the account was an ordinary one

Actions taken by SBI

SBI officials met with Bhansali in April 1997 SBI demanded immediate repayment of the over drafted amount All property to be submitted as collateral security

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

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

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

Actions taken by SEBI

Over 120 merchant bankers were issued show-cause notices Over half a dozen mutual funds were prevented from floating mutual fund schemes Morgan Stanley Mutual Fund was slapped a fine of Rs.1lakh for various irregularities

Actions taken by SBI

June 11,1997 SBI suspends 3 officials in Mumbai Branch

R.L.Walker-Chief

Manager(Mumbai Branch) V.N.Patil-Scale II officers M.M.Narang-Scale II officers

Raids at the officers residence

CRB Capital Markets-Key Financials

1992
SALES
GROSS PROFIT NET PROFIT EQUITY CAPITAL NET WORTH GROSS FIXED ASSETS BOOK VALUE

1993
31.53
25.54 21.71 21.71 80.81 56.70 31.17

1994
87.01
53.33 45.68 45.68 265.37 132.78 64.27

2.80
2.10 1.87 5.60 10.41 13.46 18.59

THANK YOU.