Merger bailout for bank with a hanky-panky past

Bank of Rajasthan (BoR) has had several brushes with the law, having run afoul of regulators on several occasions.

One of the oldest private sector banks in the country (it was established in 1943), BoR started getting embroiled in controversies in the late 1990s.

During 1996-1998, Keshav Bangur became the promoter of the bank and invited Praveen K Tayal to join him as joint promoter.
In January 2003, Bangur was arrested for defrauding BoR of Rs 300 crore. According to a CBI report on this matter, Bangur allowed Tayal to take a loan of Rs 25 crore from the bank. Ironically, Tayal used Rs 7.50 crore of this money to buy BoR shares and within a few months ousted Bangur and took control of the bank.

The Central Economic Intelligence Bureau found evidence of Tayal being involved in transferring money to various fictitious companies owned by him, which then bought BoR shares.
Some of the bank’s employees had also reportedly complained about harassment by Tayal then.

In 2007, some of the Tayal Group entities were found to have been involved in rigging the share prices of two promoter companies, KSL & Industries and Jaya Bharat Textiles & Real Estate.
The bank, which had 306 branches in 1999, has managed to add only 157 branches since then as the Reserve Bank of India (RBI) has not given approvals for new branches in the recent past.

RBI has also been objecting to the high ownership of Tayals for several years now. Under the RBI guidelines, promoter stake in a bank should be a maximum of 10%.

RBI, in 2004, did not allow renewal of promoter P K Tayal’s tenure as non-executive chairman.

The Securities and Exchange Board of India, too, had on March 8 this year banned the promoter entities from dealing in the securities market for misreporting the ownership and holding the shares in disguise. While the promoters apparently conveyed the impression that they were reducing their shareholding in the company from 44.71% in the quarter ended June, 2007 to 28.61% in December, 2009, they had actually increased it to 55.01% through multi-layered transactions and front companies.

Further, RBI in March slapped a Rs 25 lakh fine on the bank for alleged violation of various norms, including irregularities in transactions and misrepresentation of documents, norms pertaining to anti-money laundering, Know Your Customer and irregularities in the conduct of accounts of a corporate group.

Considering poor corporate governance at the bank, the central bank also appointed Deloitte Haskins and Sells to conduct a special audit of the bank, which recently submitted its interim report to the Reserve Bank. The auditor, though, has given a clean chit to the bank, saying it found no significant irregularities.