In India, individual investors are guinea pigs

PM Modi has dreams of India becoming a $5-trillion economy. He needs to wake up from that dream and see the shoddy way individual investors are treated, and to correct that treatment if he truly believes in his dream. The system does not protect investors, au contraire — it protects the scamsters and the fraudsters. It is they who corrupt the investigative, prosecutorial and judicial systems and escape with the life-savings of the investors.

Does the system have empathy for, say, the depositors of PMC co-operative bank who have lost their life-savings only because the bank management was complicit in a fraud, and lent 74 per cent of its funds to one single group, HDIL? A heartbreaking story in Mumbai Mirror spoke of three single women who often go to bed hungry because of losing money in this fraud. And the perpetrators of the fraud own bungalows in hill stations to which they get a pass to go to, to holiday during a pandemic while their victims go hungry to bed.

Does anyone in government have the semblance of a conscience?

It’s difficult to imagine, going by the analysis of the Association for Democratic Reforms(ADR) that 44 per cent of the newly-elected Rajya Sabha members have criminal cases filed against them, including for heinous crimes such as murder, rape, dacoity and theft. So long as the cases remain pending, they can continue being MPs. This explains the reluctance of our politicians to reform the judiciary and speed up the system.

It also explains why India, which has a lot of attractive features (great demographic profile, English-speaking and low-cost labour, a democratic set up, etc) does not still attract a lot of direct foreign investment. PMC is one of many such scandals where individual investors have been defrauded and nothing has been done to protect them.

Will PM Modi do something for their plight?

Now consider another travesty, in YES Bank. The bank was, during the past few years of stewardship of the founder, Rana Kapoor, irresponsibly lending to companies unable to borrow elsewhere, in return, it is alleged, for a quid pro quo. Over these years of profligate lending, Rana Kapoor diluted his stake in the bank, knowing that it would fall into trouble. It did get into trouble, and was bailed out by SBI and other banks. Deposits were frozen, holders of the Perpetual Bonds issued by YES Bank lost 100 per cent of their invested money, and last week, the bank stated that it would not pay interest on its 10.25 per cent Upper Tier 2 bonds. Now deposits provide about 90 per cent of a bank’s funds; shareholders provide around 10 per cent.

So, what is happening in YES Bank? Withdrawals by deposit holders are subject to limits. But RBI has extended a ₹50,000-crore credit line by three months and the bank has also been permitted to make a ₹15,000-crore follow-on public offer! This is bizarre. A company/bank, which is in financial trouble, is being permitted to raise more money from the public. This is not happening in India alone. In the US, a bankruptcy court permitted Hertz, the car rental company, to make a public offer of shares.

In these cases, the system seizes assets and sometimes liquidates them. That is logical.

But what is not logical is that the sale proceeds are not distributed to the victims. In the case of NSEL, for example, sale proceeds of defaulter assets are lying with the Enforcement Directorate. Guess why. Because of objections by the fraudster, who wants to verify the bona fides of investors!

Sorry, Mr Modi, but if such crimes against individual investors are not tackled, then the dreams of India becoming a $5-trillion economy will remain just that — dreams.

The writer is India Head — Finance, Asia/Haymarket. The views are personal.