System Defects that led to Ketan Parekh Scam
First: Indian Banking Systems
Ketan parekh was a very good broker but he did not had enough money to make it big by investing into larger stakes. For this he borrowed from various banks public and private both and also from companies. According to reports, the 12 lakh shares he owned of Global would have cost him Rs 200 million and stocks of aftek Infosys would have cost him Rs. 50 million, Zee and HCFL around Rs. 250 million each. His methods were very simple. Ketan Parekh used to buy shares of high growth companies when they were trading at low prices and then waited for the prices to go up, once the prices were high enough he used to pledge the shares with the banks as collateral for the funds.
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A big hand amongst them was of Madhavapura Mercantile Co-operative Bank(MMCB). Madhavpura Mercantile Co-operative Bank (MMCB) issued him credit regularly against his overpriced ICE (Information, Communication and Entertainment) stocks. MMCB violated Reserve Bank of India (RBI) regulations by providing Ketan Parekh's companies about Rs.840 crores. Banks such as Global Trust Bank(GTB) and Standard Chartered had also given Ketan Parekh an over-draft facility which he used to recycle funds into the market. SEBI's investigations reveal that, Ketan Parekh had access to near about Rs.2,000 crores of funds, primarily from banks by the end of march 2001. "Ketan Parekh misused the banking system to channelise banking funds into the stock market," the SEBI reports said. MMCB crossed its capital market exposure limits by issuing funds to Ketan Parekh without proper collateral security. MMCB's loans to stock markets were around Rs 10 billion out of which amount lent to Ketan Parekh and his firms were over Rs 8 …show more content…
Other mutual fund investors also followed them believing that the market activity indicated that these companies had a good future ahead.
Second: The Badla System
All this was allowed to happen because of the Badla System, this system was later corrected by the SEBI, that is after the Ketan Parekh Scam came into light.
Badla System is a trading involving buying of stocks using borrowed money with stock exchange as an intermediary at some interest rate which is determined by the demand for the stocks and the maturity date which is not greater than 70 days. In badla system of trading, broker is responsible for the maintenance of stocks.
‘Badla’ literally means ‘something in return’ and it is the charge that the investor pays for carrying his position forward. It is a hedge tool and lets the investor to take position in the scrip without even taking an actual delivery of the stocks. Badla transaction system was in practice for several decades in the stock exchange of
What are the major reasons investors purchase mutual funds as reported to the Lawrences by the Financial Advisor?
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Using money for payment or exchange is called a monetary system. "Under a monetary system money is exchanged for goods or services; goods and services are exchanged for money when people sell things"(Case, Fair, Oster, 2012). Mone...
Perhaps the biggest failure in the reservation system affecting current times is in the status of laws and jurisdiction. Communal land ownership and federal trust restrictions on land ownership and use inhibit economic development and many land allotments are owned collectively by groups of individuals. Multiple ownership makes it difficult to manage the lands and it reduces benefits to individuals. It is also nearly impossible to use the land as collateral for obtaining loans because of federal protection from encumbrances on trust
they also chose to access the markets in 2000 in order to ensure access to funds at attractive pricing despite
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
In 1986 convince a businessman named Douglas Maxwell to join him in etablishing the Frankel Fund. The Frankel Fund was an investment partnership in which the limited partners had to invest at least $50,000 each. In 1991 the Frankel Fund failed and the Securities and Exchange Commission banned him from dealing with securities business for life. After that he using false names he set up the Creative Partners Fund LP. This fund was another scam like the Frankel Fund but the minimum investment was only $10,000 and it spread through a much broader base of investors. He and his partner Sonia Schulte formed a thunor trust to purchase insurance companies that where in financial trouble.
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Through the IPO, Narayan Hrudayalaya offered 245 lakh shares for sale by promoters and other shareholders to public. Among the promoters group, Dr. Devi Prasad Shetty and Shakuntala Shetty offered 20.40 lakhs shares each. The biggest block of 122.6 lakh shares was offered by JP Morgan, after which its holding will reduce to 4.67% from
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Ambani took a different route to cut his capital costs. He seeded the equity cult, and converted his huge debts at high premiums into equity. His effective cost of capital thus came to match the cost of comparative projects abroad. And thanks to his equity raising abilities, his projects always were set up at the lowest cost.
Float is the difference between a company’s recorded amount of available cash and the amount that has been credited to the company by the bank that results from time delays in certain processes within the banking system, such as mailing and clearing checks. Companies “play the float” in order to decrease collection times or extend disbursement dates, allowing them to have more cash on hand to use for interest building securities. Electronic Funds Transfer is a system that allows funds to be transmitted and credited electronically without the presence of a paper check. Electronic Funds Transfer increases the efficiency of the banking system and decreases collection float time. International cash management is a technique that allows a company to deposit money in countries with high interest returns. International cash management provides opportunities for a company to invest in high return loans that maximize profitability. Marketable securities is a technique that turns non-generating cash into interest generating revenue through treasury bills, treasury notes, CD’s, commercial paper, Eurodollar deposits, and savings accounts.
In case of illiquid Local markets clients can benefit by Easy access of acquiring financing by entering into highly li...
In the wake of guaranteeing specialized attainability and money related reasonability, the advance is endorsed by the bank. The credit is dispensed in stages viz., development of sheds/other common structures, buy of hardware and apparatus, repeating cost on buy of chicks, nourishes, solutions, and so on. The end utilization of the credit is checked and steady catch up/observing is finished by the