GROUP 1

PRESENTATION ON RURAL SURVEY

“SYSTEMIC SHOCKS”
Submitted by:- Under the guidance of:-
Pravisha Jaiswal Prof. Tanuj Nandan
Sona Verma
Kushagra Srivastava
Mayank Sharma
 Content

● Introduction to systemic shocks

● Population dynamics of India
● Rural Investors
● Instances that lead to systemic shocks

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 Systemic Shocks
• A systemic shock is a shock to any system that perturbs a system
enough to drive it out of equilibrium. Systemic shocks occur in a
wide range of fields, ranging from medicine to economics to
engineering.

• Systemic shocks refers to the breakdown of an entire system rather

than simply the failure of individual parts. In a financial context, it
captures the risk of a cascading failure in the financial sector, caused
by interlinkages within the financial system, resulting in a severe
economic downturn.
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 Systemic Risks
• In finance, systemic risk is the risk of collapse of an entire
financial system or entire market, as opposed to the risk
associated with any one individual entity, group or
component of a system, that can be contained therein
without harming the entire system.

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 Systemic Risk vs. Systematic Risk

• Systemic risk describes an event that can spark a major collapse in a specific

industry or the broader economy. Systematic risk is the pervasive, far-
reaching, perpetual market risk that reflects a variety of troubling factors.

• Systemic risk is often a complete, exogenous shock to the system, such as

the threat that one of the major banks that collapsed during the 2008
financial crisis could then trigger a massive market implosion.

• Systematic risk is the overall, day-to-day, ongoing risk that can be caused by
a combination of factors, including the economy, interest rates, geopolitical
issues, corporate health, and other factors.
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 INVESTORS
• Who are Investors?
• Who are Rural Investors? Why they are known as
untapped potential?
• What are the sources of investment for Rural Investors?

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Few instances that led to Systemic Shocks…

• Saradha Group Scam

• Satyam Scam
• CRB Scam
• Sahara Group Scam
• Ram Survey
• PMC Bank Scam
• PACL Scam
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CASE 1: Saradha Group Scam 2013

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 The Saradha Scam Overview
• The scheme, run by Saradha Group (an umbrella company with 200
private players), was launched in the early 2000s by businessman
Sudipta Sen.
• Aimed at small investors, the scheme became popular in a very short
time as it promised high returns.
• The company was based in the eastern Indian city of Kolkata, is
believed to have raised more than Rs 2,500 crore from about 250,000
investors by promising returns as high as 40 percent in less than two
years.
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• The money was collected through a wide network of agents, who were
paid commissions of over 25 per cent.

• The scheme soon expanded to Odisha, Assam, and Tripura, and the
number of investors reached close to 1.7 million.

• Problems started in the company in 2012, when SEBI asked the group
to stop accepting money from investors and obtain the regulator's
permission to run its schemes.

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• The Saradha Group Ponzi scheme was already beginning to unravel.
In January 2013, the group's cash inflow was, for the first time, less
than its cash payouts.. The scheme collapsed by April, prompting
agents and investors to file police complaints.

• Investors and other angry people have taken to the streets to demand
action from the government on alleged fraudsters. Three persons
believed to be investors in Saradha have committed suicide after the
scam became public.

• On 6 April 2013, Sudipta Sen wrote an 18-page confessional letter to

the CBI, in which he admitted that he had paid large sums of money to
several politicians.
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• He also stated that TMC leader Kunal Ghosh had forced him to enter into loss-
making media ventures and blackmailed him into selling one of his television
channels at below market price. Sen fled after posting this letter on 10 April.

• The Commission recommended that West Bengal state government to sell the
assets of Saradha Group and proportionally distribute the returns among
defrauded investors.

• By April 2014, the commission had refunded 400,000 depositors who had
invested less than ₹10,000. Rs. 185 crore was refunded to the depositors.

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Case 2: Satyam Scandal 2009

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 Introduction
● B. Ramalinga Raju and his brother-in-law D.V.S. Raju established
Satyam Computer Services Limited (SCSL) in 1987 and it was
incorporated as a public limited company in 1991.

● It is about corporate governance and fraudulent auditing practices

allegedly in connivance with auditors and chartered accountants.

● The company misrepresented its accounts both to its board, stock

exchanges, regulators, investors and all other stakeholders.

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● The company essentially showed inflated sales by creating false
invoices.

● He also withdrew $3 million every month as salaries on behalf of

employees that did not exist.

● 356 investment companies was used to divert funds from Satyam.

● He raised money from investors by showing false data in accounts and

used that money to purchase several thousands of acres of land across
Andhra Pradesh to ride a booming realty market.

● This created a huge gap in books of Satyam Computers between actual

and fake figures and every attempt made to eliminate the gap failed.

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● Raju then had tried selling the firms to Satyam for an estimated Rs
7,800, which could have covered up the glaring gaps in its accounts.
But he failed and confessed his crime.

● The investors suffered huge losses because of this and stock market
crashed which effected the confidence of investors all over India
those who invest in stock market.

● Government began investigating and quickly appointed a new board

to Satyam. The board’s goal was to sell the company within the next
100 days. The winning bid was placed by Tech Mahindra who went
on to buy Satyam for 1/3rd of its value before the fraud was revealed.

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Case 3: CRB (Chain Roop Bhansali) Scam 1996

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● This scam worth 1200 crores was executed by a middle class trader and
Chartered Accountant Chain Roop Bhansali. This CRB Scam of 1996 is
considered to be the biggest Mutual Fund Scam India ever witnessed.

● Bhansali established ‘CRB Consultants,’ a private limited company in

New Delhi in 1985 and in 1992, the name of the company was changed
to CRB Capital Markets (CRB Caps) and it was converted into a public
limited company.

● He then established CRB Mutual Fund in 1994 and CRB Share

Custodial services in 1995. He also established 133 unlisted companies
and subsidiaries, and most of his transactions were made using these
dummy companies which never existed.

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● Since there was a boom in the Non-Banking Finance Company (NBFC)
sector in the 90s, it acted as a catalyst for the Ponzi schemes, and
Bhansali took good advantage of such schemes to execute his fraud.

● The Ponzi schemes were the fraud schemes that lured investors and paid
profits to earlier investors with funds collected from the recent investors.

● The scheme leads victims to believe that profits are coming from
genuine business activity, and they remain unaware that other investors
are the source of funds for these schemes.

● CR Bhansali Scam became the first ever Indian scam based on this type
of scheme.

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● CRB Capital Markets, raised a record Rs 176 crore in three years. In 1994
the CRB Mutual Funds launched a closed ended scheme, Arihant Mangal
Growth Scheme, which was planned to mature in 1999 and raised Rs 230
crore from thousands of investors. Another Rs 180 crore came through
fixed deposits.

● The CRB Corporation Ltd raised Rs 84 core through three public issues
between May 1993 and December 1995 then the CRB Share Custodial
Services raised a further Rs 100 crore in January 1995 to set up operations.

● By such activities, Bhansali managed to keep the share prices of CRB

companies artificially inflated and raised and he was able to post profits for
group companies.

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● During these three years, Bhansali’s net worth of CRB Capital Markets moved
from Rs 2 crore in 1992 to Rs 430 crore in 1996.

● Since Bhansali was in constant pressure to pay the returns (on the investor’s
investment) which were not possible with the high rates, he simply started raising
more money to pay interest on investment and, in some cases, the principle by
borrowing from the market.

● In 1995, it was found that only Rs 6 Cr came from retail investors and the rest
amount of 224 Cr was collected from his dummy companies and reinvested in the
same companies’ shares.

● This scam shattered thousands of investors’ dreams, and led to a loss of hard
earned investors’ money. Around 20,000 investors finally hoped to get back some
of their money when the Delhi high court set up a 3-member special committee to
ensure termination of the scheme & repayment to unit holders.

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CASE 4: Sahara Group Scam
2014

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 INTRODUCTION
• In the present economic and social environment, issues related to
corporate social responsibility and ethics are gaining more and more
importance, especially in the business sector.
• Investors are one of the important stakeholders of any company, who
fund part of the money by buying shares or a “part ownership” in the
company.
• Sahara India Pariwar (founded in 1978) is an Indian conglomerate
headquartered in Lucknow, India with business interests in finance,
infrastructure & housing, media & entertainment, consumer
merchandise retail venture, manufacturing and information technology.
• The company had an estimated market capitalization of US$25.94
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billion as of March 2011.
• This case is about Sahara group which did a fraud with their investors.
Sahara India Real Estate Corporation Limited (SIRECL) and Sahara
Housing Investment Corporation Limited (SHIC), are the two unlisted
companies floated in 2008, controlled by the Sahara group.

• These two Companies raised about over Rs 24,000 crore from more
than three crore investors. Promising to return three times their face
value after 10 years, people found this as a good and lucrative
investment.

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• While analyzing the Draft Red Herring Prospectus, SEBI detected
some error in the fund-raising process, also SEBI received
complaints on 25th December 2009 and 4th January 2010 that
SIRECL and SHICL are issuing Optionally Fully Convertible
Debentures (OFCDs) and raising funds in a wrong way.

• With this regard Delhi police arrested Sahara group owner Subrata
Roy in march 2014 and to appear in court over failure of two
Sahara companies to pay Rs 19,000 crore by way of dues to be paid
to investors.

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• This turned out to be the scam which is known as Sahara Group
Scam, people from different income group invested in this company
mostly are from low income group from rural India.

• To repair the damage done to the investment sector and to stop this
systemic shock to spread further, SEBI had asked investors to submit
refund application with documentary proof.

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CASE 5: Ram Survey Scam 2013

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● Speak Asia promoter Ram Sumiran Pal,  Ram Niwas and Manoj
Sharma masterminds behind a Rs 2,200 crore online marketing
fraud.
● Company has promoted itself as Largest Survey Group in India.
● Company is promoting their website by Mouth to Mouth
Publicity . By Saying :-
Invest Rs.3,500 in Our Website and you will Get
1 Id and in a Week you will get 4 Survey of
Rs.500 Each.
and in a Month Time you will Get Rs. 2000

You can do it all from home, in your spare time,

at your own pace! You can work (if you could
call it "work")
in the morning, afternoon, or at night. Spend 20
minutes or a few hours a Week—it doesn’t
matter; it’s entirely up to you!

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• They Paid a few investors at first, which help them to gain trust
among public and number of people joining the company
increased exponentially.

• Speak Asia wrapped up its operations in India in mid-2011 till

then 24 lakh investors were scammed of an estimated Rs 2,276
crore.

• Cases and Complaints were filed by the Investors and the

senior officials of the Company went hiding.

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These were the Complaints found on India Consumers Complaint
Forum

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• The investment amount was very low and because of this people from
low income group especially from rural areas started investing in this
company.

• Speak Asia remitted Rs 900 crore to Singapore, the police said.

• Some 210 bank accounts containing Rs 142 crore have been frozen.
Another 150 accounts are under investigation

• Till now government is not able to refund the money of the investors.

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Case 6: PMC Bank Scam 2019

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 Introduction
● Punjab & Maharashtra Co-operative Bank Limited (PMC), is a
multi-state co-operative bank that began operations in 1983.

● It's one among the profitable co-operative banks in Asian country

and had earned total revenue of ₹1,297 Cr (US$182 million) and
profits of ₹99.69 Cr (US$14 million) in the financial year 2019.

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What happened at PMC?

● On 23, Sept 2019, the obligatory operational restrictions on PMC

Bank for 6 months.

● Housing Development and Infrastructure Ltd. (HDIL) promoters

allegedly colluded with the bank management to draw loans.

● This company had created 21000 dummy accounts in this bank and
took loans from these company in small amount. Which are shown as
NPA by bank officials.

● It was done to conceal the fact that these accounts belong to the same
company & a huge amount had been loaned that they could not
repay.
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Who were involved ?

● The total fraud was about 6500 crore and the deposits were 11000
crore.

● Enforcement Directorate (ED) attached a property worth 3500 crore

which is to be used to pay back the depositors.

● Account holders were not allowed to withdraw over ₹1,000 from

their accounts throughout the era of restrictions. Later on the limit
increased to 10,000 rupees then to 25000 rupees.

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Case 7: PACL Chit Fund Scam 2015

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 Introduction
● Pearl Agrotech Corporation Limited (PACL) and PGF (Pearl
Golden Forest), It was also a pyramid scheme fraud.

● Around 5.5 crore people lost 50,000 crore rupees.

● It was one of the biggest financial fraud also the biggest

investment fraud till date.

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● PACL asked people to invest the money, they claimed that PACL will
buy lands through the funds, then they will develop the land for
various purposes like agriculture etc.

● After the development they will sell the land on huge profit.

● PACL told the investors that whatever amount they will invest, they
will get a plot for that amount.

● PACL claimed to give returns of 4 times of the money invested by

the investors.

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● SEBI found out that PACL & PGF both are not following the rules &
regulations under CISR, and asked both of them to stop the
operations & return the money of investors.

● ED captured their property in Australia of 472 crores & also found

assets of 11,706 crores but the total investment was of 50,000 crores.

● The process of refund was started by SEBI but only few people got
their money back & the refund process is still going on.

● As many as 1,270,849 investors of PACL Ltd, with claims of up to

₹10,000, have been returned a total of ₹438 crore as of 31 March
2021

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Conclusion

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• India has a large, low-income, rural population with limited access to
formal banking facilities.
• The objective is achieved instead by a web of parallel, informal banking in
the form of money lenders who have existed in India for a few centuries.
• To curb this practice, several Moneylenders Acts were enacted by the State
governments of India by the 1950s. However failure to replace the role of
moneylenders gave rise to unscrupulous financial operators that operated
Ponzi schemes.
• Most of the scandals represent the antithesis of all business ethics. Sahara,
for one, has been convicted of wrongfully acquiring investor money
without proper authorization.

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