Case Study in The CRB Scam|Finance|Case Study|Case Studies

The CRB Scam

            
 
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Case Details:

Case Code : FINC008
Case Length : 9 Pages
Period : 1993 - 1997
Pub. Date : 2002
Teaching Note : Available
Organization : CRB Group, SEBI
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Excerpts Contd...

The Systemic Rot

The collapse of the CRB group seemed to be a fraud allowed by supervisors despite the regulations in place. The lack of clear communication channels between the banks, RBI and the government seemed to have worked to Bhansali's advantage to a great extent.

Frequent clashes occurred between RBI and SEBI in the media, with both of them trying to prove how the other was responsible for not acting early enough. The RBI claimed that it had no powers to examine the asset quality of the CRB group and thereby was not in a position to pass any judgment on the character of asset generation or deployment of the funds raised by the group.

The bank further claimed that the powers were granted only in March 1997, when the RBI Act of 1934 was amended to include specific provisions for the purpose. The bank also stated that it had begun to examine the liabilities and not the assets. However, media reports were quick to refute RBI's claims...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

The Aftermath

The CRB scam took the whole nation by storm. At one point, the Union finance ministry held a meeting everyday to get to the brasstacks of the CRB fiasco. In a meeting with SEBI, the finance minister criticized the regulator severely.

The government asked the RBI to prepare a panel of auditors asking to explore the possibility of making auditing of NBFCs a prerequisite to registration. In October 1998, the SEBI appointed an administrator for CRB's Arihant scheme finalized a scheme for payment to the unitholders.

Under the scheme, the investors were prematurely paid Rs 4.95 per unit, which was its NAV as of 31 March 1998. When the administrator had taken over, the assets of the scheme comprised the fund's frozen bank accounts worth Rs 81 lakh, plus some dividends from investments. Besides, there were a large number of listed (but thinly traded) and unlisted shares amounting to Rs 17.5 crore...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

Exhibits

Exhibit I: CRB Capital Markets - Sources & Uses Of Funds
Exhibit II: CRB Capital Markets - Key Financials
Exhibit III: A Note on Indian Financial Sector Scams


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