(a) whether the Government have asked the RBI to expedite conversion of aU Government Securities into Demat mode following unearthing of multi-crore scam involving co-operative banks and broking firms;
(b) if so, the details thereof;
(c) whether the Government have also asked the RBI to draw up strategy to avert such scams
in future;
(d) if so, the details thereof and the steps taken by RBI in this regard; and
(e) if not, the time by which such steps are likely to be taken?
MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRi ANANT G. GEETE)
(a) to (d) :Reserve Bank of India (RBI) has intimated that it has been, over a period of
time, encouraging holding of government securities in the dematerialised mode. Presently,
99% of the trading in government securities takes place through Subsidiary Genera! Ledger
(SGL) accounts with RBI for which the Delivery versus Payment (DVP) system ensures simultaneous
transfer of securities against funds. Of the new issuances in 20p1-02 of government
securities, 99.9% was in SGL form
However, in the light of recent fraudulent transactions in the guise of Government securities
transactions in physical format by a few co-operative banks with the help of some broker
entities, it was proposed to accelerate the measures under contemplation for further reducing
the scope for trading in physical form. RBI, thus issued a circular on` Transactions in
Government securities` on 20th May, 2002, taking the following measures to expedite conversion
of all Government securities into demat modes:
(1) All RBI regulated entities [including financial institutions (Fls), primary dealers (PDs),
cooperative banks, RRBs, local area banks (LABs), non banking financial companies (NBFCs)] were
advised to undertake
purchase/sales transactions with effect from JUly 1, 2002 Ml`i1pulsorny thrOUgh SUbSidiarY
General Ledger (SGL) /Constituent Subsidiary General Ledger (CSGL)/demat accounts.
(2) All RBI regulated entities were advised to mandatorily hold their investments in Government
securities in SGUCSGL account or in a demat account with depositories.
(3) It was specifically indicated that the custodians providing SGL or demat facility
must ensure clear funds in the buyer`s account and sufficient securities in the seUer`s
account before putting through a transaction.
(4) all RBI regulated entities were prohibited from undertaking any transactions in physical form with any broker
Securities and Exchange Board of India (SEBI) has intimated that it has forwarded the said
circular to stock exchanges for compliance and to bring the same to the notice of their
broker-members.
For non-RBI regulated entities, RBI has requested the Secretary, Ministry of Labour,
Govt. of India and Central Provident Fund Commissioner to consider issuing suitable
instructions to Employees` Provident Fund Organisation/Regional Provident Fund
Commissioners/other concerned entities making demat holding of Government securities
mandatory them.
RBI has further taken following additional measures to heip strengthen the capabiiities
ofinstitutions in avoiding recourse to frauds in their operations:
(i) Urban Co-operative banks have been prohibited from dealing with brokers on principal
to principal basis.
(ii) Prompt punitive action has been taken against defualting banks and officials
including supersession of Boards, levying of penalties and criminal action against Qfficials.
(iii) Cases where brokers appeared to be involved !nprice manipulation and other undesirable practices have
been referred to SEBI.
(iv) List of `Dos and Don`ts` finalised by the Primary Dealers` Association of India for
transactions in Government securities including conducting due diligence on the broker`s
track record and antecedents, etc. has been forwarded to all RBI regulated entities, Ministry
of Finance, Central/Regional Provident Fund Commissioner, Secretary, Ministry of labour,
Govt. of India for wider dissemination.
(v)Negotiated Dealing System (NOS), a screen based system set-up by RBI was operationaHsed
with effect from February 15, 2002, to ensure transparency and enable settlement in RBI
either directly Qf through Clearing Corporation of India (CCIl)
(e) : In view of (a) to (d) above, does not arise.