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THE

CRB SCAM
Management of Financial Services
(GROUP 8)
- Sai Prasad (PGP/18/24)
- Trip; Agarwal (PGP/18/56)
- Ankur Singh (PGP/18/129)

- Isha Chhabria (PGP/18/245)


- Tanya Gupta (PGP/18/279)


EVERY SINGLE DROP OF MY BLOOD IS FOR THE DEPOSITORS.
-CHAIN ROOP BHANSALI IN 1997

CRB SETS UP SEVERAL ENTITIES TO CREATE A WEB


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CRB Capital Markets

n Merchant Banking, leasing and hire

CRB Corpora;on Ltd.


n Set up as granite manufacturing

purchase, corporate funds


management, mutual funds & asset
management

process, got into nance later

n Raised Rs.840m between 1993 and

1995

n Stock-broking card on NSE and BSE

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n Raised Rs.1.76b by January 1995; Net

Worth Rs.4.6b in 96

CRB Mutual Funds


n Arihant Mangal Growth Scheme: Rs.

2.3b in 1994; Rs.1.8b in FDs

Total income up from Rs.12m in 1991 to Rs.1.03b in 1995


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FACTORS THAT LED INVESTORS TO DEPOSIT >RS. 9BN IN JUST 5 YRS


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A+ ra;ng given by CARE

Upfront cash incen;ves of 7- 10%

Connec;on with religious leaders and poli;cal par;es

Size of the group increased the faith of the people Caps, MF, Corp

Groups global outlook and ;mely foreign collabora;ons

Self promo;on - published a booklet - DR CR Bhansali making the dierence

Good contacts in Registrar of Companies

Successful JVs with Daewoo Securi;es and Keystone group


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MODUS OPERANDI
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Set Up Dummy Companies with no Equity


Stage-managed maiden public issue with a few hundred investors
Sold them for a prot to businessmen who needed public limited companies in a hurry

Used own money to rig Share Prices Raised more Money from Market
Bought his own stock through private nance companies owned by him
Used his public companies to buy into each other as cross holdings
CRB Mutual Funds CRB Capital Markets and CRB Share Custodian Services
CRB Share Custodian Services CRB Capital Markets
CRB Capital Markets CRB Mutual Funds
Kept share prices of CRB companies ar;cially inated
Post prots on paper for group companies without marked investments to the market

Buy IPOs of Companies at Price Lower than Issue Price


Enter into a forward deal with nance companies
Sold holdings at high price promising to buy a year later at higher prices
Prots from share prices remained high
Raising money from the public in future was easier
Company could get high credit ra;ngs ensuring steady xed deposits and bank credit inow
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CRB DEFRAUDS SBI VIA FAKE ACCOUNTS


May 1996

CRB Caps opens a current A/c in SBIs Mumbai Branch


Payment Warrants (Interest, dividend and redemp;on) could be presented anywhere; no
overdraq facility

SBIs
Claiming complex logis;cs, branches began trea;ng them as DDs
misjudgement

March 1997

SBI catches overdraq of millions; stops honoring warrants


CRB had printed 1800 fake dividend warrants

April 1997

CRB asked to cover Rs.470m liability


SBI demands CRBs property as collateral
CRB unable to deposit the 1st installment

SBI now informs RBI; RBI les winding-up pe;;on; CRB charged with fraud, chea;ng, and siphoning o funds
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LIMITED ROLE OF SEBI TO CONTAIN THE SCAM


December 1994 SEBI ini;ated a rou;ne inves;ga;on on CRB Mutual Funds (CRBMF)

Chitale Report CA rm M.P. Chitale & Co. indicated severe irregulari;es

January 1995 CRBMF punished with a 9 month retrospec;ve ban to


approach the market for more funds

December 1995 Bhansali secured banking license from RBI

Why did SEBI not send full details to RBI of the CRB viola;ons?
The RBI never asked for it.
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HOW DID RBI FAIL TO CONTAIN THE SCAM?


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Under the RBI Act of 1934, RBI failed to examine the asset quality of the CRB group

RBI circumvented SBIs report on irregulari;es found in CRBs MF and broking businesses to
approve CRBs banking ac;vi;es

No signicant ac;on taken against CRB despite the accusa;ons of default of loan payments

D RBI took six weeks to issue winding-up no;ce and liquidate CRB, during which Bhansali destroyed
all physical evidence

Poor communica;on between RBI and SEBI, the two regulatory bodies for nancial sector
Supervisory lethargy of RBI
Lack of accountability of the regulatory bodies
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THE AFTERMATH
nMutual fund (CRB Arihant Scheme):

13,245 unitholders who held up to 300 units were paid @ Rs 4.95 per unit
Non-retail holders who held >10,000 units were also paid for 300 units
Finally, unitholders were able to get almost 50% of the ini;al sum invested
On 27 April, 2015 as per a Special SEBI commiuee, the remaining investors will
be paid back at an NAV of Rs. 6.45 per unit

nBank accounts: Bank accounts frozen worth Rs. 81 lakhs


nShares: Shares worth Rs. 175 mn were disposed o
nPanel of auditors: The government asked the RBI to prepare a panel of auditors asking

to explore the possibility of making audi;ng of NBFCs a prerequisite to registra;on

CRB SCAM HAD A FAR-REACHING IMPACT


Declining investor condence in banks

Poor performance of NBFCs

Increase in the stress on ocial accountability

Crea;on of smart investors

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Thank You!

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