The Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) are working in close association in investigating the Rs 300-crore Citibank fraud. The capital markets regulator is already probing the role of brokerages in the matter.
“The co-ordination has been happening between RBI and Sebi and the regulators are working jointly to understand what went wrong,” said Dr K M Abraham, a whole time member at Sebi, on the sidelines of a conference here.
“I suppose we will have a lot of lessons to learn from this (Citi fraud). There is somebody who is making investment decisions on behalf of investors.”
Last week, the Gurgaon police arrested Shivraj Puri, a Citibank relationship manager, for allegedly luring rich clients to invest in fraudulent schemes that promised high returns supposedly backed by the bank.
Abraham said the investigation capabilities of Sebi had been “fairly sharpened”. “Investigation as a process has to adapt to the changing environment. Sebi is now in a much better position to investigate such frauds,” he said, when asked whether the quantum of investigations and vigilance had gone up in the recent past.
He, however, said the “regulator has to learn a lot more to stay ahead of people who would perpetrate fraud”.
On a different note, Abraham said a final decision on the proposed Takeover Code will take some more time. “It will probably take one or two more board meetings to come at a decision,” he said, while refusing to give a specific timeline.
On the Bimal Jalan committee report, he said “the regulator will take stock of the reactions that have come and eventually the board” will take a decision. “We will need to put little more work into it,” he added.
Sebi pulls up MFs again
K N Vaidyanathan, executive director at Sebi, reiterated the need for mutual funds (MFs) to have consistent benchmarks for evaluating the performance of schemes and criticised the use of customised benchmarks in some debt schemes.
“If we have a consistent comparison to Sensex or Nifty, it would make sense to the investor,” said Vaidyanathan. He emphasised the need for differentiating between similar products on the basis of their investment strategies.
“Let us assume one fund delivers a 17 per cent return with consistent churning and another similar fund has delivered same return by buy-hold strategy. Can this performance be conveyed to the investor,” he said. “There is no accountability on churning.”
He also asked the mutual fund industry to evolve a common policy to maintain an arm’s length distance from rating agencies. “Wherever a regulatory tightening is required, the regulator will move swiftly, but fund houses should try to implement global best practices, which are good for long-term interest of the industry.”
