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Can regulators do with short memory?
Mon, 15 Oct Pre-Open

They say that public memory is very short. But can regulators too get away with the same excuse for lack of proactive supervision? It was not so long ago when Indian regulators swore to keeping a hawk eye on corporate governance norms. This was just after the promoter of Satyam shocked everyone with the biggest corporate scandal in Indian history until 2008. But as years have gone by, the scam has faded in public memory and so has regulators' intent to keep a tight leash. Or so it seems!

The Finance Minister, Law Minister and Corporate Affairs Minister have seemingly giving a clean chit to DLF and Mr Vadra stating that 'nothing to be done' about the deals made between the parties. This brings in the regulators - the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) into the picture.

Since DLF is a listed company, the SEBI should probe the unanswered questions of the dealings relating to the two parties with the key one being - the reason for DLF providing interest free loans/ advances to Mr. Vadra's companies at a time when the company itself was facing the burden of high debt. After all, at the end of the day it is a case of how interests of all investors - big and especially the smaller ones - get trampled over by crony capitalism.

The RBI has been roped in because of the involvement of Corporation Bank, which according an article in Firstpost, provided an overdraft facility of Rs 79.4 m to a company belonging to Mr Vadra at a time when the paid-up capital in the company stood at Rs 100,000 only. Some of the questions being asked include whether the public sector bank observed all the norms in releasing an overdraft of Rs 79.4 m to Vadra's undercapitalised company and whether there was some kind of collateral taken against this overdraft.

More 'Satyams' in the making?

Ever since the Satyam scam, there have been a host of scams that have been brought to light. But, it seems that more often than not, the end result has been the same - regulators take action only after the damage has been done.

For investors, it would be important to learn from such dealings. While humans tend to forget old instances easily, it would be wise to engrave in one's head the importance of investing in businesses with ethical managements.

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