rediff.com: JPC slams BoI over 'tainted' official's appointment

The Joint Parliamentary Committee probing last year's stock market scam has hauled up Bank of India for appointing U H Somaiya -- a person with "tainted record" -- as the assistant general manager in its Bombay Stock Exchange branch.

JPC, in its draft report, said further investigations be made to find out if Somaiya or any other official of the bank "colluded" with Parekh and reaped financial benefits.

"Although the branch was handling large volume of sensitive business, a person (U H Somaiya) with a tainted record was posted as AGM in this branch during November 2000, who in turn allowed large scale discounting of high value pay orders issued particularly in favour of Ketan Parekh group of companies by Madhavpura Bank and ultimately resulted in a big pecuniary loss of Rs 1.30 billion as on July 25, 2001," JPC said.

Noting "extreme unhappiness" against the management for not holding all those responsible, it said, "no action was taken against zonal manager who not only failed to alert the head office but also did not appoint a concurrent auditor for months together and had recommended transfer of Somaiya to the sensitive post in the stock exchange branch of the bank, even though he had been chargesheeted earlier."

Persons responsible for appointing Somaiya in such a crucial post during a critical phase should be indentified and suitable actions initiated, the JPC said adding that criminal proceedings be launched against all those responsible for causing "wrongful" loss to the bank.

The committee said strict disciplinary action should be taken against all those who were supposed to exercise due diligence in the discharge of their duties and had "woefully" failed to do so.

Maintaining that the bank "overlooked/transgressed" laid down rules, procedures and norms, the report said, "Bank of India imprudently delegated powers to the branch managers/officials of the bank for discounting the pay orders without weighing either the financial standing/status of the counter party bank or the track record of the client."

It said no effort was made to exercise internal control and to put the risk management measures in place and the guidelines issued by RBI on the subject "were flouted with impunity".

"Despite detailed instructions issued by RBI, the bank had discontinued concurrent audit of Mumbai Stock Exchange branch after October 2000 and the same had not been introduced till June 2001," the report said.

Though the bank had stopped discounting pay orders of any cooperative bank and have fixed counter party limits/prudential limits for different categories of person in the case of demand drafts, JPC said, "the major problem of overcoming the settlement risk which is reported to be the main cause behind this huge loss remains to be addressed."



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