FM turns heat on IPO scam guilty

Finance Minister P Chidambaram today said that stringent action would be taken against those involved in the opening of bank accounts of certain entities in complete violation of Know Your Customer (KYC) norms.

Coming down heavily on loopholes in the current system, he said: "I don't accept a system that cannot detect multiple accounts with one address."

Chidambaram was responding to queries from journalists at the Bank  of Baroda headquarters in Mumbai on the irregularities detected in bank accounts and demat accounts of investors, who had applied for shares in the initial public offer (IPO) of a private bank.

"I am told that it is a systemic problem. I have spoken to Reserve Bank of India, Securities and Exchange Board of India and concerned banks ...and they have taken the issue very seriously", finance minister said.

The systems would be tightened to detect loopholes and strong action would be taken against those found involved in flouting norms, Chidambaram added. The Securities and Exchange Board of India (Sebi) in December had unearthed  irregularities in allocation of Yes Bank's IPO.

It had referred Bharat Overseas Bank and Vijaya Bank to the RBI for their roles in opening bank accounts of certain entities and funding of their IPO applications. Subsequently, the RBI also issued showcause to a few more banks for alleged irregularities.

Addressing concerns on banks' problems in raising capital, the finance minister said that the RBI has prepared a discussion paper on revised definition of tier-I and tier-II capital of banks.

"Once the banking sector regulator finalises its stance, bank would have more headroom. They would not have a problem in raising funds to meet capital adequacy ratio for the next four-five years," he said.

The finance minister reviewed the performance of Bank of Baroda and addressed its board, managers and unions in a separate meeting.

Chidambaram said unions and staff must shed fear about change and technology, especially when country has strong human resources and open policy.

"They must accept the fact that needs of the customer, technology and competition would decide the future of the financial sector in the country," he added.