Themes: Corporate scams / Controversies
Period : -
Organization : SEBI
Pub Date : 2002
Countries : India
Industry : Finance
- A small investor hit by the Ketan Parekh scam, in April 2001.
The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike. More so, as the Union budget tabled a day earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex. This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. SEBI also decided to inspect the books of several brokers who were suspected of triggering the crash.
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The scam opened up the debate over banks funding capital market operations and lending funds against collateral security. It also raised questions about the validity of dual control of co-operative banks4. (Analysts pointed out that RBI was inspecting the accounts once in two years, which created ample scope for violation of rules.)
The first arrest in the scam was of the noted bull,5 Ketan Parekh (KP), on March 30, 2001, by the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP's arrest was followed by yet another panic run on the bourses and the Sensex fell by 147 points. By this time, the scam had become the 'talk of the nation,' with intensive media coverage and unprecedented public outcry.
1] A change of Re. 1 in the price of a share when one speaks of a share rising or falling by so many points. In stock market indices, however, a point is one unit of the composite weighted average on market capitalisation of rupee values.
2] A stock market index indicating weighted average of 30 scrips, also known as the BSE Sensitive Index. The daily closing figure of this index broadly reflects the performance of the capital markets.
3] It was alleged that Global Trust Bank exceeded its Capital market exposure.
4] Co-operative banks are under the dual control of RBI and the Registrar of Co-operative Societies. The RBI regulates banking functions while the registrar looks after the managerial and administrative functions.
5] An investor who expects share prices to go up and hence buys them.