Both Ravis are now out of business, their so-called claim of invincibility now reduced to dust.
New Delhi: Once upon a time in Mumbai, once worked two Ravi’s, both enigmas now wrapped in mothballs of billion dollar scandals.
One was Ravi Parthasarathy, the pipe-smoking, glib talker who worked for late hours and charmed both corporate captains and bureaucrats across India with great dreams of nation building while he headed Infrastructure Leasing and Financial Services (IL&FS). And some days before IL&FS collapsed, Parthasarathy left for London for medical treatment. He knew in a few months his air bubbles will burst but he was out of sight, hoping he would be out of mind as well.
The other was Ravi Narain, who headed for long the National Stock Exchange (NSE) and worked like the proverbial Sancho Panza to his Don Quixote in the Indian Capital (read P Chidambaram, then the FM). And then he walked away to oblivion, around the time the exchange faced its worst Algo Trading Scandal.
Both Ravis are now out of business, their so-called claim of invincibility now reduced to dust. Worse, both are now being hounded by investigating agencies ranging from the Central Bureau of Investigation (CBI) to Enforcement Directorate (ED). Officers of the Serious Fraud Investigation Office (SFIO), a wing of the Finance Ministry, are trying hard to get to the bottom of two scams which have tanked a big slice of the Indian economy.
SIFO officers are all over the offices of IL&FS to get a grip on its whopping Rs 91,000 crore loss. The scam exploded last month. And for last year and a half, officers of ED and CBI are trying hard to find reasons for the big bucks Algo Trading scam at NSE where an estimated Rs 150,000 crore has been lost, probably stashed away in tax havens. IL&FS is now triggering breaking headlines almost everyday, NSE did when it the scam exploded after the Moneylife newsmagazine reported it way back in 2015.
Both were flashy, wore expensive suits and lived jester lives and made very few public appearances. Actually, they both acted like the Super Boss who would show his face only on a Blue Moon. They had a peculiar air of finality that made many dealing with them think the institutions the two Ravis head were actually government owned. In reality, it was the other way. Thanks to their superb networking among bureaucrats and ministers, the two Ravis worked smoothly, often offering deals without collaterals.
In Mumbai, traders and brokers would compare the two Ravis with Alfred Hitchcock who would plot brilliantly but never show his face, except in movies like The Lodger: A story of the London Fog. IL&FS Ravi is out of sight, very much in mind. NSE Ravi is out of sight, out of mind. Both headed companies which had its headquarters in Mumbai and both ran it with an aura of finality - almost like a big government firm - and offered little answers when crisis hit like Tsunami. The current IL&FS loss is almost a whopping Rs 250,000 crores, quite close to the amount thousands of protesting farmers are seeking as price relief.
Lets pick some of the gems from IL&FS first. After all, its in news unlike NSE.
Around early 2017 when IL&FS was facing a severe liquidity crisis, Parthasarathy was given a144 percent pay hike that took his salary to a whopping Rs 26.3 crore. And the week the hike was announced, Parthsarathy was busy settling a stock manipulation and synchronised trading charge at Adani Exports by the Securities & Exchange Board of India (SEBI), along with four other senior employees. Besides Parthasarathy, the chairman, the others were Hemang Raja, MD, and Vimal Bhandari, Arun Kumar Saha and Vibhav Kapoor, all directors of erstwhile Investmart India Ltd (IIL). Eventually, SEBI's high powered committee (HPC), on 14 December 2016, recommended settlement upon payment of Rs34.42 lakh each from Parthasarathy and Raja and Rs13.77 lakh each from Bhandari, Saha and Kapoor.
“There are serious discrepancies at the way the company was run,” economic affairs secretary Subhas Chandra Garg told reporters recently.
The IL&FS board has been sacked and reconstituted amidst serious charges that top executives of IL&FS were gold-plating projects to create their own pot of diamonds. The SFIO has to submit a preliminary report, it is still trying to understand the enormity of crisis because Parthasarathy ran IL&FS with his cronies for over two decades creating over 550 subsidiaries and 66 joint ventures and associates. Upfront, a whopping Rs 30,000 crore is at risk, according to data analysed by REDD Intelligence.
But how did he work, and manage to charm everyone? Parthasarathy had a battery of IAS officers working with him on deputation, ostensibly because large chunks of his company was owned by public sector banks and state-owned insurance companies. He knew how the system works in Delhi, he and his men worked through the system from Mumbai.
And the biggest clincher for Parthasarathy was that he ensured no one was accountable in the company, something with which the SFIO officers are currently grappling. “Everyone is denying responsibility, saying they were not in charge,” said an officer who is part of the SFIO team.
Parthasarathy played his cards well.
He was originally part of the group of ex-Citibankers which included Dev Ahuja, Sanjaya Kulkarni who set up 20th Century Finance. He was one of the pioneers of leasing, which perhaps was the reason why Deepak Parekh chose him to head IL&FS. It was a very, very timely move as the subsequent market environment turned very unhealthy for NBFCs. At the same time, there was a huge demand for those who could help finance core sector projects. Having survived the tremors of the Harshad Mehta scam, Parthasarthy knew some solid traits of marketing himself and his companies. He remained out of the limelight, except emerging twice in the spotlight. The first was the acquisition of Maytas by IL&FS and the other was the partnership with Reliance for its Haryana SEZ.
He had tremendous government support. He leveraged its big PSU shareholding to find acceptance with state governments. It also offered a 50:50 joint venture, where the state got to appoint a non-executive chairman while IL&FS ran the show with its own managing director (MD) and virtually owned the projects.
Parthasarathy built deep contacts with bureaucrats in the Indian Capital and also in the states. IL&FS had scores of IAS officers on its payrolls and reportedly doled out favours to politically connected persons (PCPs), even facilitating admission of their children to Ivy League universities abroad. It also had over 40 domestic and international banks as lenders. Worse, IL&FS even sold its debt to nationalised banks at a profit. No wonder some of its big bucks projects hit dirt, among them Tirupur Water and Noida Toll Bridge where the Supreme Court ordered the bridge to remain toll-free.
What is surprising is that now everyone wants to turn IL&FS as a professional organisation, but the top notched board did not raise an alarm despite knowing every major project of IL&FS was mired such controversy and litigation. No one talked, not even the large foreign shareholders.
There are lookout notices at the airports to prevent the top brass, including Sankaran, Ramesh C Bawa and K Ramchand from leaving the country. But what surprised me was the fact in the last board meeting before the sackings happened, IL&FS talked as if nothing had happened, it was business as usual. Worse, it mailed a statement to stakeholders and the markets saying everything was fine and key shareholders would get a rights issue out to solve the financial crisis. How bizarre could it go, wondered the SFIO?
What is probably not known to many is both NSE and IL&FS - for decades - presented themselves as quasi-government entities.
Consider the case of the Algo Trading Scam. Enforcement proceedings have been initiated against NSE, its past and present officials, stock brokers and other connected entities. DEA Secretary Garg has already said the investigation in the matter, taking into account the findings made in the forensic audit reports and other available facts, has since been completed. And based on the findings of the investigation, enforcement proceedings have been initiated against those who in NSE who doled out favours to a few brokers.
SEBI is also on the move, its chairman Ajay Tyagi is on record saying the market regulator is initiating action in the NSE algo or co-location scam. There is a FIR filed by the CBI on May, 2018 against Sanjay Gupta, owner and promoter of OPG Securities Pvt Ltd, Aman Kakrady (brother-in-law of Sanjay), Ajay Shah (who is alleged to have facilitated Gupta by developing and providing Algo software Chankaya) besides unnamed NSE and SEBI officials. Among those mentioned in the SEBI show cause notice are Narain and Chitra, both former MDs of NSE and Shah.
Like Parthasarathy, Narain also worked as if there is no tomorrow. But when he left NSE on June 2, 2017 as vice chairman and shareholder director on the NSE board, his swan song was anything but memorable. For all the noises he made in the market for a two decades plus association with NSE, the departure was less than a whimper. Thanks to his clout within the power corridors of the Indian Capital, Narain had rendered SEBI all but irrelevant. But eventually, he was stung by his very own protégée Chitra Ramakrishna who edged him over the cliff, and SEBI - now realising Narain was down and out - hit back very, very hard.
The reason for his departure was he did not wanted to be party to the discussions the NSE board will be having with SEBI over the investigation into the co-location server controversy that allegedly gave some brokers preferential access to NSE’s trading system. Narain is among the 14 officials sent show cause notices by SEBI.
Narain had an interesting career, a management graduate from Wharton, he briefly worked as a policy consultant in the US before returning in India in the 80s to join the Industrial Development Bank of India (IDBI). He picked up the brains of RH Patil, then an Executive Director at IDBI. When IDBI Chairman SS Nadkarni put together a team to set up the National Stock Exchange. Nadkarni chose Patil to head the NSE and Patil picked Narain as one of the senior members of his core team. Interesingly, other members included Chitra Ramakrishna, Ashish Chauhan, Raghavan Putran and K Kumar.
The top NSE brass decided it needed to be present in both stock and debt markets in a big way, actually taking on the might and power of the Bombay Stock Exchange. What was surprising that NSE was allowed by New Delhi to expand across India. BSE was permitted to spread outside Mumbai only a couple of years later.
There were troubles at BSE that helped NSE push forward, among them broker defaults following manipulation in BPL, Videocon and Sterlite shares at Asia’s oldest bourse. Thanks to his Delhi connections, Narain ensured policy makers turned a blind eye to some of the lapses at the NSE, while punishing the BSE heavily.
Consider this one. The 2001 stock market scam resulted in the entire BSE board being superseded. But strangely, murky dealings in the Automated Lending and Borrowing Mechanism (ALBM) segment were never thoroughly probed. ALBM started as a pure stock lending scheme but soon tweaked to incorporate features of a carry forward system like the Badla on BSE. Now consider this again. The SEBI approval for the modification came nine months after NSE had informed the regulator, but the mechanism carried on uninterrupted even when it was awaiting the green light.
This was all because Narain ensured he had support from Delhi. Market observers say NSE reportedly benefited from a benign policy environment, killed competition at will.
Narain got the shock of his life when Jignesh Shah planned to get into equities trading some time in 2008. Shah had proven himself in the commodities market with the Multi Commodity Exchange (MCX), beating NSE-promoted NCDEX hollow. Despite having started two months behindIn currency derivatives, MCX-SX - an arm of MCX - caught up with NSE’s market share. Narain was getting genuinely worried.
More trouble followed NSE denied permission for a software developed by MCX’s parent company Financial Technologies for currency futures trading by NSE members. NSE cited security issues, but MCX said it was rejected because it was a rival in currency futures trading. MCX sent in a complaint to the Competition Commission of India, accusing NSE of anti-competitive practice in currency futures, by not charging its members any fee.
MCX-SX’s application to SEBI for starting an equity trading platform got no response for almost two years. In 2010, driven to frustration, MCX-SX sued SEBI for the delay in approval, setting off a legal battle that would drag on for nearly two years. Finally, it was in February 2013 MCX-SX finally launched its equity trading platform. But by then, nearly four and a half years had lapsed since it had first applied for the license.
In 2010 again, the Bimal Jalan Committee on Market Infrastructure Institutions (MIIs), a category that included stock exchanges, made its recommendations, some appeared to clearly favour NSE. There were other kid glove treatments from the government, mainly due to Narain’s clout. In 2012, NSE got a mere rap from SEBI in its members were brazenly exploiting the client code modification facility to help clients evade tax. Just imagine in March 2010 alone, client codes for nearly Rs 55,000 crore of trades were modified post trading hours.
There was again a slip, an erroneous trade order by a broker send the Nifty crashing 10 percent. NSE did not halt trading in equity and equity derivatives for two hours, a direct contravention of SEBI rules. So what happened? Trading in derivatives continued uninterrupted, while that in equities was resumed after 10 minutes.
It seemed to many in India that for NSE, SEBI just did not matter. Narain was emerging powerful but he remained under the radar and rarely gave interviews. He eventually eased himself out in 2012 and announced he was leaving NSE, deputy and protégée Chitra Ramakrishna was named successor from April 1, 2013. Surprisingly, no external candidates were considered by the board for the role. The stock markets were surprised at his decision to leave but there were many who said Narain was eyeing for the SEBI chairman slot. It was around the time when the Finance Ministry was looking for a successor to UK Sinha. But it did not work.
NSE had its fortunes soaring when a payment scam at NSEL in July 2013 dented Jignesh Shah’s aspirations to create the largest exchange group in the country. At NSE, Subramanian was pushing her agenda high, no one was there to keep her in check. Narain was unable to control her and this power struggle eventually caused major frictions at NSE.
Change of some key bureaucrats in the Finance Ministry following a new government at the Centre caused troubles for NSE, it was no longer above power. And then in 2015, a whistleblower wrote a detailed letter to SEBI alleging how some NSE brokers who had availed of the co-location facility were profiting from a faster access to the NSE order book.
The cat was out of the bag.
It is not known how close the Finance Ministry is to resolve the two scandals and what possible action would be taken against the two Ravis, but that they twisted and turned the system to their benefit could easily be a great script for Bollywood.