KP SCAM

KETAN PAREKH SCAM AND ITS IMPACT ON FINANCIAL INSTITUTIONS : 

KETAN PAREKH SCAM AND ITS IMPACT ON FINANCIAL INSTITUTIONS BY SANJAY BARICK REGD.NO-0941333222

WHO IS KETAN PAREKH ? : 

WHO IS KETAN PAREKH ? Popularly known as ‘Bombay Bull’. Certified chartered accountant. NH securities started by his father and managed by him. KP had a good relation with global corporate giants and actors. KP arrested on 30 march 2001 for the security market scam known as Ketan Parekh scam. He was punished one year jail and banned from brokering job till 2017

Scenario of scam : 

Scenario of scam Bombay Stock Exchange (BSE) President Anand Rathi resigned. Eight people were reported to have committed suicide . Hundreds of investors were driven to the brink of bankruptcy and two banks also. The Sensex lost over 700 points and more than 500 of the 1364 actively traded shares

KP’s research findings : 

KP’s research findings Infotech, communication and entertainment. Low liquidity shares of less volume of capital. KP-10

KP-10 : 

KP-10 Amitabh Bachchan Corporation Limited (ABCL) Mukta Arts Tips and Pritish Nandy Communications HFCL Global Telesystems Zee Telefilms Crest Communications Penta Media Graphics

New Overseas Corporate Bodies(OCB) : 

New Overseas Corporate Bodies(OCB) The Securities and Exchange Board of India’s preliminary investigation in May revealed that Rs 29 billion was transferred out of the country through five Overseas Corporate Bodies between March 1999 to  March 2001. These OCBs had together invested just Rs 7.77 billion in the Indian market but remitted a whopping Rs 36.77 billion out of the country. This direct flight of capital occurred through European Investments, Far East Investments, Wakefield Holding, Brentfield Holdings and Kensington Investment. Three of these companies have a paid up capital of just $ 10.

Scam mechanism : 

Scam mechanism Artificial rigging. Though the price of shares depends upon the basic two economic factor demand and supply, an artificial demand was created through continues investment.

Scam on light : 

Scam on light Even before the Parekh scandal broke out, the stock markets had been witnessing turbulent times across the country. The Calcutta Stock Exchange (CSE) was the first to make news after Abhishek Banka committed suicide on March 19 after reportedly losing money in the market. His wife, Sona followed suit, days later. Subsequently, the BSE witnessed a series of Black Fridays. On February 16 (Friday), the Sensex fell 106.67 to close at 4330.32 and then on February 23, it further plummeted by 140.39 points to close at 4122.16. All Fridays in the month of March saw a decline in the market. March 2, 9, 16, 23 and 30 all witnessed decline in points of 176.49, 174.98, 74.12, 78.69, and 147.18 respectively. Clearly something was wrong with the way things were being run

Steps taken by SEBI after scam : 

Steps taken by SEBI after scam SEBI launched immediate investigation on the scam. The SEBI has also imposed volatility margins on net outstanding sale positions of FIIs, financial institutions, banks and mutual funds. SEBI banned naked short sales. In simple words, it means that all short sales have to be covered by an equal amount of long purchases. RBI started inspecting accounts and sub-accounts twice a year in spite of once in two year.

IMPACT ON FINANCIAL INSTITUTIONS : 

IMPACT ON FINANCIAL INSTITUTIONS

Bombay Stock Exchange : 

Bombay Stock Exchange The Bombay Stock Exchange witnessed one of the worst bear runs leading to a 177-point crash on 2 March 2001. On 23 May, the BSE announced the launch of trading in index options in the first week of June,  based on the European style.  For this purpose, the exchange has joined hands with the Chicago Mercantile Exchange to adopt its system of calculating margin requirements  and managing risk, known as Standard Portfolio Analysis of Risk (SPAN).

Calcutta Stock Exchange : 

In fact the 177-point crash on 2 March 2001 was triggered by the payment crisis at Lyons Range (CSE) and Dalal Street (BSE). While investors were still trying to digest the shortfall of Rs 100 crore for the settlement ended 1 March on the CSE, the market was gripped with rumors' of a fresh payment crisis on CSE for the following settlement ended 8 March. Although the CSE authorities denied the payment crisis initially, SEBI went ahead and suspended 40 brokers on CSE Calcutta Stock Exchange

NEDUNGADI BANK : 

NEDUNGADI BANK After the Ketan Parekh bubble burst in 2001, the RBI suddenly swung into action and began to go through Nedungadi’s books with a toothcomb. Punjab National Bank took over the bank that was up for sale after RBI initiated the move to weed out the broker promoter Rajendra Bhatia from the bank.

GLOBAL TRUST BANK : 

GLOBAL TRUST BANK Ramesh Gelli’s search for high returns took the new generation private bank to the stock market, where its involvement in the speculative activities associated with the Ketan Parekh scam and its high exposure soon resulted in substantial losses. This led to the exit of Ramesh Gelli in 2001. Eventually, Oriental Bank of Commerce (OBC) took over the troubled bank.

Madhavpura Mercantile Co-operative Bank : 

Madhavpura Mercantile Co-operative Bank Ketan along with his associates also managed to get Rs1,000 crore from the Madhavpura Mercantile Co-operative Bank. which had collapsed and caused thousands of depositors to lose money

State Bank of India : 

State Bank of India However, this time, SBI’s losses are restricted to about Rs 40 crore, lent against pay orders issued by Ahmedabad based Classic Co-operative Bank. According to bank analysts polled by Capital Market, this is “loose change” for the bank of its size

Bank of India : 

Bank of India Of the five banks hit by pay order defaults, Bank of India has unfortunately been the worst hit. It cashed Rs 137-crore fictitious pay orders issued by the Ahmedabad based Madhavpura Bank to arrested broker Ketan Parekh. The banking sector is estimated to have taken a hit of more than Rs 1,000 crore due to the pay order scam indulged in by many Gujarat co-operative banks. It was Bank of India’s complaint to Central Bureau of Investigation that resulted in Parekh’s arrest on 30 March 2001.

others : 

others Many mutual fund institutions, like ICICI, UTI..etc also have loosen due to invested in KP-10 securities.

Slide 19: 

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