The Reserve Bank of India (RBI) has asked banks to investigate funding provided by them in the last three years for purchase of shares in initial public offers (IPOs).
In a letter, the RBI has directed all banks to investigate the role of registrars, depository participants (DPs), brokers and individuals in obtaining funding from banks “through devious means to corner the retail portion of public offers”.
Banks have also been asked to ascertain that directions and guidelines on know your customer and anti-money laundering, advances against shares and IPO funding and internal controls were complied with in “letter and spirit” and not disregarded at any stage. The letter was released at a press conference by Investors’ Grievances Forum here today.
Banks have been asked to prepare a report on their investigations and place it before the audit panels of their respective boards and also submit it to the RBI. The RBI warned that any inconsistencies in the report would be viewed seriously.
Inspection revealed that certain stock brokers, with help from depository participants, approached banks for opening multiple accounts in fictitious names. They also requested banks to fund the IPO for various demat account holders. These accounts were opened under fictitious names.
Some banks extended IPO finance directly without opening individual saving bank account or loan accounts while others provided funding to few savings accounts by adding multiple names.
