From: bala@research.att.com (Bala Krishnamurthy)
Newsgroups: soc.culture.indian
Subject: Two U.S. Banks Tied to Financial Scandal
Keywords: U.S. India Stock Market Scandal
Date: 26 Aug 92 17:35:10 GMT
Organization: AT&T Bell Laboratories


apnews reports:
	   BOMBAY, India (AP) - A government-appointed panel has linked two
American banks to stock brokers involved in India's worst financial
scandal and recommended further investigations to see if they broke
the law.
	   In its 90-page report Monday, the panel said Citibank of New
York and Bank of America of San Francisco overstepped Indian
banking guidelines to make money available to the brokers, who
turned around and invested it in the Bombay stock market.
	   The panel said it suspected some of brokers' transactions were
fictitious to cover up other deals while the banks received a
guaranteed return for financing brokers' stock activities.
	   Neither bank immediately commented on the report. Bank of
America Assistant Vice President for public relations, Fiona
Shrikhande, said the bank is studying the report. Ravi Bhatia,
Citibank's director of corporate affairs, said the bank would issue
a statement, but none was immediately released.
	   India's stock market reached an all-time high on April 2, then
fell 800 points, or 20 percent, during the last week of April when
the scandal became known. Many small investors went broke, and the
stock market still suffers.
	   Investigators have traced the scandal to financial deals that
stock brokers handled among the banks. They say some bank officials
allowed the brokers to use receipts from loan agreements to raise
money for stock investments.
	   The latest report said Citibank and Bank of America misreported
transactions in their books to make available millions of dollars
to brokers who now are under arrest.
	   In May, the Reserve Bank of India, the nation's central bank,
said the scandal involved at least 17 major banks, including a
British and an Australian bank, in illegal deals worth 30.8 billion
rupees, or $1.1 billion at current exchange rates.
	   In its third report issued Monday, the six-member panel
appointed by the Reserve Bank linked U.S. banks to the scandal for
the first time.
	   The report said Citibank, Bank of America and six Indian banks
bought and sold shares through brokers, but the buying and selling
rates listed in the books didn't match.
	   ``No satisfactory explanation has been given as to why these
huge losses have been borne by the brokers or such huge gains to
brokers have been allowed to accrue,'' the report said.
	   It said the panel suspected that the transactions were fictions
to cover up other deals, while the banks got a guaranteed return
for money that was channelled to the brokers.
	   According to the report, Citibank loaned the key suspect in the
scandal, Hershad Mehta, $20 million on April 10-13 to settle part
of the money he owed to the State Bank of India. This was around
the time the whole financial scandal became known.
	   Turning to Bank of America, the panel said some of its transfers
``appear to be tailor-made transactions ... for consideration
received in the past or to be received in future transactions, or
any other purpose. This needs to be probed further.''
	   It said Mehta was given credits worth up to $6.6 million that
``violated the normal banking norms. The bank has pleaded that this
lapse occurred due to clerical error, which is difficult to
believe.''