Derivatives Battle: Round 2

Last week 19 banks paid RBI almost Rs 2 crore in penalties for breaking the rules while selling derivative products- remember Rajshree Sugars, Sundaram Multi-pap and dozens of companies alleging that they were mis-sold complex derivative products by banks. So does this RBI order strengthen their case? Will we see round 2 of the derivatives battle between India Inc. & Banks?

H Jayesh, Founding Partner, Juris Corp and representing several banks and Berjis Desai, Managing Partner, JSA and representing several companies make their case. Berjis Desai
Managing Partner, JSA
Representing several companies As we know this all begin somewhere around 2008 or so and there were a plethora of suits filed all over the country and quite a few of them have been settled out-of-court with the banks picking up losses between 25% to even as high as 60% and a few of these cases are still pending. What is going to happen is that- as a result where the regulator itself is indicting the banks on record and stating precisely the things which have been alleged in the plaint- undoubtedly the case of banks would weaken and this will hasten the process of compromise of the remaining suits also. H Jayesh
Founding Partner, Juris Corp
Representing several banks If you look at the fact pattern, the banks in most of the cases relied upon the representations made by the corporates. Yes, we have an underlying, yes, we have a past performance and we will deliver the documents to you subsequently and atleast in two different matters, which we handled, we then have the bizarre spectacle of the corporate- the person concerned then swearing on oath- we did have an underlying, but you know what we hedged with another bank prior in time and now therefore there is no underlying with this bank and therefore the trade is not valid. So you have a spectacle of corporates actually misleading the banks by misrepresenting to them and then trying to take advantage of the same and RBI action having an impact on that, I don