The Serious Fraud Investigation Office (SFIO) has sought the cancellation of the banking licence of DCB Bank for its role in the National Spot Exchange Limited (NSEL) scam.
Nearly five years after the scam broke out in 2013, it has now come to light that India Infoline Commodity (IICL) and DCB Bank had entered into an agreement to encourage the bank’s clients to enroll with IICL for trading on NSEL.
DCB was neither authorised, nor did it take clearance from the RBI for an agreement with IICL to push its clients to trade on NSEL, said the SFIO investigation report seen by BusinessLine .
The Ministry of Corporate Affairs (MCA) has now asked SFIO to share its report with the RBI “as proposed for taking appropriate action”. Further, the MCA also directed SFIO to share the report with the Department of Financial Services, which is under the Finance Ministry.
The SFIO report says the brand name India Infoline Financial Services (IIFL) was used by IICL to lure clients to trade on NSEL, and the brokerage appointed agents to scout for “prospective clients to trade on the exchange”.
The report says IICL, through their group company, IIFL, had financed 70 clients to the tune of ₹231.34 crore to trade on NSEL. IICL had banking facilities with DCB Bank, and both of them entered into contract, whereby the bank pressed its account holders to take NSEL membership through IICL. Clients were assured by the brokerage that “under no circumstances loss can occur on these transactions”, said the SFIO report.
“The brokerage, and the bank, were found acting in concert with NSEL in mis-selling their fraudulent financial products. The brokerage was involved in unethical and illegal practices of inducement, misrepresentation, making false assurances, alluring clients to earn brokerage and commission income and, in this process, there were unlawful gains for the brokerage and bank while its clients suffered losses.” An e-mail query sent to IIFL did not elicit any response. “We are not privy to communication between SFIO, MCA and RBI. As per industry practice and extant guidelines, DCB Bank has referral arrangements with third parties for financial products, and it entered into referral agreement with IICL to provide access to commodity trading across MCX, NCDEX and any other entity approved by FMC. Customers were directly dealing with IICL for their investments/trade needs.
“The total fee income earned by the bank in FY2012 and FY13 was approximately ₹11 lakh. The bank is confident of its due diligence, documentation, and compliance to applicable guidelines,” said DCB Bank.
SFIO was tasked with unravelling criminal conspiracy in the NSEL scam. The agency has sought action against NSEL promoters, key board members, and brokers under criminal code. The MCA has also asked the agency to share its report with SEBI for “necessary action and preventing brokerages and directors from accessing money market and, if required, declaring them ‘not fit and proper’.”