The Telegraph
Since 1st March, 1999
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Bharat Overseas under fire

Mumbai, Jan. 13: The Reserve Bank (RBI) today said it had evidence which showed that IPO funding violations by Bharat Overseas Bank ' through multiple accounts ' were not restricted to the issues of Yes Bank and IDFC.

This justifies fears that share allotment rules were short-changed in other maiden offers, including those of Suzlon Energy, Shoppers’ Stop, Gokuldas Exports, Provogue India, Gateway Distiparks and IL&FS Investsmart.

On Thursday, the Securities and Exchange Board of India (Sebi) unearthed a demat racket in the IPO of IDFC. In this case, investors opened 45,000 fictitious demat accounts to corner shares. Using spurious applicants, entities cornered 8.29 per cent of the retail shares in the issue. What led the market regulator to the trail was an investor who opened 6,300 demat accounts to wangle shares in the maiden flotation of Yes Bank.

Sebi asked the central bank to examine the role of Bharat Overseas Bank and Vijaya Bank in opening the accounts of these benami entities and funding their IPO applications.

In its statement today, the Reserve Bank said its initial findings in the demat scam revealed that Bharat Overseas Bank had flouted rules in issues other than that of IDFC.

“Sebi had written to us on December 16, 2005 in the matter of the Yes Bank IPO. The Reserve Bank carried out an investigation into Bharat Overseas Bank, Vijaya Bank and others. This revealed the practice of funding IPOs through multiple accounts was being followed by Bharat Overseas Bank in several IPOs. Infrastructure Development Finance Company was one of them,” the RBI said.

Based on the investigation reports, the Reserve Bank had called for explanation from all banks involved in irregularities. While individual banks have not responded so far, the central bank is planning to take action.

Sebi named Bharat Overseas Bank and Vijaya Bank in the Yes Bank muddle ' where accounts of benami entities were opened and their IPO applications funded. But HDFC Bank, Indian Overseas Bank and ING Vysya Bank have also been put under the scanner. Though HDFC Bank did not come out with an official response to Sebi’s report on Thursday, sources close to the private sector bank said an internal probe was on.

The central character in the IDFC rip-off was Roopalben Panchal, whose shenanigans in the Yes Bank allotment scam exposed just how easily IPO regulations could be subverted.

The IDFC offer was open for a week from July 15. Once the process was over, Sebi’s surveillance department asked CDSL and NSDL to furnish details of large off-market deals in the shares from July 22 to August 15, 2005.

CSDL’s data showed Panchal receiving 39,43,184 shares from 14,807 dematerialised accounts through off-market transactions on August 11' prior to the stock’s listing on August 12.

All 14,807 demat accounts of Panchal are tied to Bharat Overseas Bank and KarvyDP.

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