SFIO wants DCB Bank licence cancelled for role in NSEL scam
21 January 2019
The Serious Fraud Investigation Office (SFIO), which is investigating the 2013 National Spot Exchange Limited (NSEL) scam, has now sought the cancellation of the banking licence of DCB Bank after it came to light that the bank partnered with brokerage IICL to induce clients to trade on NSEL.
According to the SFIO finding that comes our nearly five years after the scam broke out in 2013, India Infoline Commodity (IICL) and DCB Bank had entered into an agreement to encourage the bank’s clients to enroll with IICL for trading on NSEL.
DCB was neither authorised, nor did it take clearance from the RBI for an agreement with IICL to push its clients to trade on NSEL, reports citing the SFIO investigation report said.
The ministry of corporate affairs (MCA) is reported to have asked SFIO to share its report with the RBI “as proposed for taking appropriate action”. The ministry also directed SFIO to share the report with the Department of Financial Services, which is under the finance ministry.
According to the SFIO report, the brand name India Infoline Financial Services (IIFL) was used by IICL to lure clients to trade on NSEL, and the brokerage appointed agents to scout for “prospective clients to trade on the exchange”.
IICL, through their group company, IIFL, had financed 70 clients to the tune of Rs231.34 crore to trade on NSEL. IICL had banking facilities with DCB Bank, and both of them entered into contract, whereby the bank pressed its account holders to take NSEL membership through IICL. Clients were assured by the brokerage that “under no circumstances loss can occur on these transactions”, said the SFIO report.
“The brokerage, and the bank, were found acting in concert with NSEL in mis-selling their fraudulent financial products. The brokerage was involved in unethical and illegal practices of inducement, misrepresentation, making false assurances, alluring clients to earn brokerage and commission income and, in this process, there were unlawful gains for the brokerage and bank while its clients suffered losses.”
DCB bank is reported to have justified its dealings saying that it has referral arrangements with third parties for financial products, and it entered into referral agreement with IICL to provide access to commodity trading across MCX, NCDEX and any other entity approved by FMC. Customers were directly dealing with IICL for their investments/trade needs, the bank added.
DCB bank also said it had received total fee income of Rs11 lakh in FY2012 and FY13 and that it had dine due diligence, documentation, and had complied with all applicable guidelines.
SFIO has sought action against NSEL promoters, key board members, and brokers under criminal code.
The MCA has also asked the agency to share its report with SEBI for “necessary action and preventing brokerages and directors from accessing money market and, if required, declaring them ‘not fit and proper’.”