Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Commentary

NSEL Gets Just 8 Cr., FMC Toughens SGF Norms, Jignesh Proposes Haircut, FT Directors Quit

While NSEL paid out Just Rs. 92 cr. out of the Rs. 174 it was supposed to this Tuesday, it is going to be even worse next Tuesday. NSEL defaulters were supposed to have paid in the second installment of their dues on Friday, but what it had received, sadly, was just Rs. 8.5 cr. in this week. Most of that came from Metkore Alloys who paid Rs. 5.4 cr. (despite having paid double its commitment last week)

(Note: Sankhya investments also paid up 0.3 cr, which along with it’s double-of-commitment last week will make it “current” with the settlement. Topworth and Aastha haven’t paid, but they paid 3x commitment last week)

What this means is that NSEL might pay out an even smaller fraction (8.5 cr.) out of the 174 cr. it must. This is a huge default and the wheels are beginning to turn elsewhere.

In an investigation, tax authorities have found that the stocks backing the transactions at NSEL were not there at all, or not enough.

"In some cases there are no stocks, in others the quantity of the stocks is below that claimed by some of the buyers," a senior income-tax official told ET

And then, Rs. 550 cr. worth cheques given by NSEL have bounced.

In a major twist, NSEL promoter Financial Technologies’ founder Jignesh Shah proposed a 25% haircut, which was rejected by investors. Given that there is potentially fraud involved, and that the promoter might have to go to jail, there will likely be a long wait before money is recovered, if at all. A haircut might look feasible, but only if the money is available as visible demand drafts – no one will believe any promise that Mr. Shah makes anymore.

Two directors have left the Financial Technologies board. R. Devarajan and B.R. Barpande, put in their papers as directors.

The FMC has realized that the settlement guarantee fund of NSEL was largely bogus. It has now issued directions to all commodity exchanges that the settlement guarantee fund must have:

  • 5% of all gross revenues since 2007-08
  • Member capital and refundable deposits of members
  • Further contribution of 5% of revenues each year.
  • Min Rs. 10 cr.

A rough calculation of MCX revenues over five years is about 2,000 cr. which should mean they need to allocate about Rs. 100 cr. as the SGF contribution. (It has only 1.9 cr. in it as per their 2011-12 annual report). NCDEX will need about 25 cr. (500 cr. revenue in the last five years) and has 2.4 cr. in their SGF (from ET).

This is not the end, or even the beginning of the end. This might however be the end of the beginning.

  • Mk says:

    When it’s the money of common man involved the ministers name it as “greedy investors”. They should look at the intent of the investors as none if the investors would have given money to any of these nine defaulters even if they would have promised a interest of 24% but since the exchange had promised safe & secured returns of 11-15% the investors put in their money. The returns were promised against a genuine business model by buying in SPOT & selling in FUTURE which should run like any other business model. But the promoters, the exchange has not verified their facts & the govt didn’t intervene in the early stages to either regularize or stop the trades if they were not genuine. What were the REGULATORS doing all this while. They were not doing what they were supposed to regularize & that’s why the MONEY is stuck.
    The govt should understand that all these investors has given the money to the “Exchange” which had been operating in regulatory void. If the regulators would have stopped the operation when the breach was detected then the investors money would have been safe. If there was regulatory breach by the exchange then these exchange & products should not have been “ALLOWED” to take money from the investors by the regulators, which in-turn is govt’s responsibility. There are various departments in the govt to ensure the laws are abided by the citizens, company’s, exchanges & business.
    Govt is just trying to shed all the responsibilities & terming the investors as GREEDY which they should be shameful of, because an investors tries to earn a returns of their own “money” to increase their net worth & support their families & not like the politicians who earn billions by usurping TAX payers money in billion dollar scams
    That’s a difference in the US & INDIAN. In india the citizens are just considered as money providers in way of various taxes & their interest are NEVER taken into consideration. Firstly NSEL kind of exchange would never have propped up in the US which runs as a proprietary business instead of an EXCHANGE & secondly in worst case scenerio the FED or the finance ministry would have refunded the money back to investors to restore there confidence in the SYSTEM & then would have dealt with the defaulters. IN INDIA THE GOVT ARE ALWAYS THE FIRST TO WASH THEIR HANDS OF THEIR RESPONSIBILITY TOWARDS THE TAX PAYERS OF THE COUNTRY. We as India are facing these crisis since a common man doesn’t trust this SYSTEM whether its political, social or financial. IF THE POLITICIANS & THE OF LAW OF THE COUNTRY instills and restores the confidence in the citizens by providing a safe BASE & SECURITY to the citizens of India then INDIA can be one of the most POWERFUL countries in the world in financial & political terms.

  • PrAvEen says:

    Isn’t this a major scam then Satyam???

  • Swan says:

    So the story is with 5000 cr funds you can enter into Rajya Sabha thru political party and manage business and regulators.

  • Jose says:

    Wow..25 % Haircut ? Investors you may finally have to take 75 % Haircut…take what is available and run ! It was a blatant Ponzy scheme backed by ‘AIR’ Cover. Its time Govt. rushed in and sealed up MCX & FT like the Satyam scam and start winding up process before it is too late.

  • Bhushan says:

    It is surprising that brokers have not taken the legal route. Is NSEL blackmailing them because they manipulated the trades (read your other artcicle: Brokers Were Definitely Guilty in NSEL Fiasco Also)?

  • Why is the opposition not taking this up in parliament is a mystery. Parliament is in session.