How Destiny Caught Up With The Man In A Hurry

The story of C R Bhansali, promoter of the CRB group, is of a man who was in a tearing hurry to make it big in the world of finance.

Bhansali started out in Calcutta in the early 1980s, making a fortune by floating and selling shell companies. In 1985, he set up CRB Capital Markets, the flagship company of the CRB group.

In the beginning, Bhansali's companies grew fast and all appeared to be well. During the stock market boom of the early 1990s, the company earned the reputation of being one of the leading merchant bankers. During those years, Bhansali floated many more companies.

 

Bhansali spared no efforts to raise funds. He had a deposit mobilisation network no NBFC could match. He garnered crores through small outlets in remote rural areas by promising attractive returns.

However, problems began to surface during the liquidity crunch that engulfed the economy two years ago. The crux of the CRB problem was a spiralling debt burden as the company's expenditures were persistently higher than income. Bhansali used to rely primarily on fixed deposits to meet his funds requirement.

Bhansali set up numerous companies and hired senior level executives at very attractive salaries and perquisites by providing them living accommodation in Mumbai's premium localities. All this was a major drain on their resources. As a result, the company entered into a spiralling debt trap for which it relied largely on its fixed deposits. The money raised from fixed deposits was used to repay deposits which had matured, meet with the expenses of the company as well as funds were used to set up other companies.

In the face of the liquidity crunch, CRB faced a slowdown in deposit mobilisation. At this point, it started offering huge incentives including high upfront discounts and brokerage levels as high as 13 per cent against an industry average of 4-5 per cent. It would often designate some of its depositors as sub-brokers and then offer them handsome incentives. One such victim Business Standard spoke to was a retail investor from Gujarat who, lured by the handsome brokerages as well as cash incentives, mobilised fixed deposits worth Rs 25 lakh.

CRB looked at even some more options. It is claimed to have raised funds from cooperative banks to the tune of Rs 60 crore by issuing duplicate shares. Despite being a non-bank finance company, CRB managed to have an account with State Bank of India's main branch. NBFCs are perceived as high-risk clients and rarely have an account with the main branch of any nationalised bank.

CRB applied for registration with the Reserve Bank of India in 1994. However, there was no response from RBI. In 1995, it applied for a bank licence. It was shortlisted with five others even though there were serious reservations within the RBI's Department of Banking Operations Division (DBOD). In October 1996, CRB re-applied with RBI for registration as an NBFC. At this point, RBI conducted an inspection and found irregularities. The registration was never granted. In December 1996, the RBI withdrew the in-principle approval for a bank granted to CRB. But this was not publicised. Taking advantage of this, CRB Global Bank went in for a private placement of its shares worth Rs 10 crore.

As late as in March, CRB Corporation got permission for a power bond issue. It had also obtained a CBDT approval under section 88 and 54 E A for tax exemption under the Income Tax Act. The issue, a private placement, opened on March 13 and Rs 4 crore was raised.

Company sources say Bhansali worked his way to RBI through the political network. He is said to have offered bribes to politicians who put pressure on the finance ministry to for the bank licence. Similarly, he is said to have obtained other clearances with the help of such political connections.

Even its mutual fund operations violated the regulations stipulated by the Securities & Exchange Board of India.

Bhansali's day of reckoning came in April, when the cheques issued by CRB to its depositors for interest income started bouncing. Although the depositors were informed of this in advance, this development caused alarm among them and they thronged the CRB offices for the withdrawal of their deposits. On May 15, CRB finally downed its shutters. This led to RBI moving court for CRB's liquidation.

THE Bhansali saga

1985 CRB Capital Markets begins operations

1994 Applies for registration with the RBI. No response received

1995 Seeks bank licence. Short-listed with 5 others.

June 1995 Sebi initiates inspection of CRB.

August 1995 Mutual fund suspended from launching new schemes till June 30, 1996.

June 1996 Seeks renewal of Category-I merchant banking licence

September 1996 Re-applies for RBI registration

Oct-Nov 1996 RBI conducts inspection into CRB's operations and finds irregularities.

December 1996 RBI withdraws