Bank of Rajasthan rubbishes SEBI's fund transfer allegation

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS RBI orders special audits at Bank of Rajasthan RBI has asked for special audit: Bank of Rajasthan ALSO READ See latest News about Bk Of Rajasthan See previous management interviews See what other Experts & Brokerages are saying about Bk Of Rajasthan Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

Public sector lender Bank of Rajasthan has been charged with some serious allegations by both the Reserve Bank of India (RBI) as well as the Securities and Exchange Board of India (SEBI).

While the RBI has fined the bank Rs 25 lakh for violation of banking regulations, the market regulator has alleged that the promoters of the bank have fraudulently hiked their stake in the entity.

The RBI has appointed Deloitte and Touche Consulting India Pvt Ltd and Deloitte, Haskins & Sells to conduct special information systems (IS) audit and special audit of the books and accounts of the bank respectively.

SEBI in its initial investigation report already refers that the RBI had suspected a similar occurring in Bank of Rajasthan's shareholding. The RBI had sensed that the promoters had not brought their shareholding down.

RBI rules require that when a private entity floats a bank, in the first five years they should not bring down their stake as the bank needs to stabilise. Thereafter, they enter into an agreement to bring down their stake to under 10%, which is the maximum any non-entity can hold.

The RBI has long since asked the old private sector bank to bring down their stake and in the fullness of time go under 10%. Increasing their stake therefore is a serious breach.

However, top sources at the RBI said they may not want to immediately punish Bank of Rajasthan.

Denying SEBI's allegation regarding transfer of funds, its Promoter PK Tayal said there had been no such transfers between various entities.

Here is a verbatim transcript of the exclusive interview with PK Tayal on CNBC-TV18. Also watch the accompanying video.

Q: SEBI is making some serious allegations suggesting that there has been fraud perpetrated by the promoters of Bank of Rajasthan. Can you give us a reaction on that?

A: I have not read any order; I have not received any order or notice. At this moment I can only comment by denying and there is not a single transfer of funds from KSL or Jai Bharat to any of the entities and these entities maybe different. At preset I hold 28% shareholding in the bank and what I foresee is that there is a try by the market forces to hack the stock.

Q: There is no rumour in this; I have the SEBI order with me and it says there was incorrect disclosure made by Bank of Rajasthan regarding the shareholding pattern, there were inter fund transfer of funds to the accounts of other corporate bodies who has purchased the stake in Bank of Rajasthan. This is SEBI, there is no market force trying to manipulate your stock?

A: Let me explain you that there is no inter-fund transfer at all and neither the share purchase. We have been reducing stake from 44% on our own. We didn't have any compulsion from any body whether it is SEBI or RBI-we didn't have any compulsion or any direction that we should reduce.

Also, 18 months ago we had tied up to sell three crore shares at Rs 200 per share to BNP Paribas, Avenue Capital and so on at Rs 200. It was not deferred because of bad market and now we as a promoter group have given the notice under section 169 to the shareholders of the bank to get the qualified institutional placements (QIP) coming in.

Q: While that may all be true but these are details that have emerged from the RBI, they have done a financial inspection of Bank of Rajasthan and made these comments. They have provided detail movements of funds from the Tayal Group to certain domestic corporate termed as front companies of the Tayal Group. This is the RBI and SEBI talking?

A: I have not received any order. We have yet to receive the order but I have not come across any such thing or any such allegation in the yearly annual financial inspection (AFI) report and so on. The bank's AFI report has been completed just three months ago and we have not come across any such thing in that report.

Q: Let me read out one specific clause from the SEBI order which says that thought the promoters of Bank of Rajasthan, the Tayal Group reported reduction in their stake in Bank of Rajasthan as mandated by the RBI. It appeared that they had increased their stake in Bank of Rajasthan simultaneously through surrogate acquisition.

A: I have to see this order and I have to see who these entities they are talking about, linking with me.

Q: But the order goes on to say that some of the Directors are in common in the said are in the corporate bodies and in Tayal Group companies, the contact details are the same?

A: We have to see this order, what the companies are and what are the Directors common, we have to see all these things.

Q: These orders have been out since last evening. It's a 32 page report; you have not reached out to SEBI for more details?

A: I have not received this order and we have yet to go through what are the entities they are talking of.