Satyam, the tip of the iceberg ? What is being hidden by the banks

The long tentacles of the huge Satyam fraud will ultimately engulf not only the the auditors (Price Waterhouse) but also the banks where the cash deposits were claimed to have been kept. The answers are just not good enough, and the lies will soon engulf the banks. I trained as a chartered accountant, and in those days was part of many audit teams. One of the first things that is mandatory is for the auditor is to independently confirm the cash balances as shown in the balance sheet directly with the banks, and not through the company being audited. If such a certificate was obtained by the auditors, as is mandatory, then it is possible that some one in the bank had been bribed to send the falsified statement to the auditors. But it is virtually impossible that just one person could do so at a bank. The computerized internal audit systems at the bank would show up the discrepancy almost immedietly. Even assuming that there was a group of people at the banks perpetuating this fraud, the cash reserves of a public limited company are public knowledge and are detailed in schedules to the published balance sheet.
Satyam was such a highly regarded and traded stock, that it is virtually impossible that the banks like HSBC and HDFC, all of who run their own wealth management funds for their clients would not be completely aware of the details of Satayam’s balance sheet. Someone would gave got up and said ” Hey ! these cash balances stated in our bank just do not exist !”
Yet no one blew the whistle ? For seven years ? Either the banks and their fund managers are completely stupid, or were just willing to go along with the fraud. The accountants and the banks, both of which have a fiduciary and legal responsibility, have much to answer for. And perhaps the reason the the investigators are not going after the banks is that it would create a loss of faith in our banking systems. That would panic the entire financial system and might even led to a run on the banks.
Corporate India has a lot to answer for. It was these people that would go on and on about the corruption in the government, which incidentally they themselves would encourage on a much higher level. But now it is evident that even at its core, Corporate India sees itself as a private club that is free to dupe the middle class investor and depositor for its own gains.
Satyam is India’s sub prime crisis, and the effects will be long and painful as the corruption in the system is unraveled. It will reach the highest echelons of our corporate world, for Raju could not have perpetrated this fraud at this level and for so long, alone. It needed the collusion of the banks, the accountants, and the government. And I would bet that he knows that he will be let off lightly as the investigations will be somehow stopped before it engulfs the whole system.

15 thoughts on “Satyam, the tip of the iceberg ? What is being hidden by the banks

  1. The last paragraph in your post says it all. That will happen. The AP government had a major hand in this fiasco given the fact that most of the Govt. projects were unconditionally given to Maytas, which is Satyam’s sister concern.And it is a well known fact in Andhra Pradesh that the current Government is less of a Government and more of a ‘Corporate’ engaged in Real Estate business. Literally every minister/MLA is into Real estate and the govt. is primarily responsible for land extortion and also for unreasonably and irrationally raising the land prices overnight.Have you ever seen a 15% rise in prices every 2 months? if we calculate, the rise would be 230% Year-on-Year. Abolutely senseless.And it is surprising that the opposition is playing it silently, without politicizing this whole issue, as they usually do. because even they had kickbacks and they are also into same business.Not even a single politician is talking about Satyam’s episode because they all are involved.
    We finally come back to same problem, the problem of Indian – ‘Our Politicians’

  2. The writing is clearly on the wall. Just below the surface almost 95% of Indian companies are like Satyam. They all manipulate results/cash flows and what not.
    Seems after America’s 9/11 and subprime now it is our turn. We have already had our 26/11 and now this opening of pandoras box of financial misdeeds! Just a couple of hours ago I had sort of a premonition that our Nifty may eventually go down to eight hundred something before it looks up again.

  3. Yeah there we see the chakra at it again.
    Hey Harb don’t be so despondent.95% is a big number don’t you think? NSE going to 800 before coming up again- Are we saying now that 2 decades of reforms and the greatly sung about Manmohan-Chidambram-Montek trio and all that infra(highways and hitech banking and competitive mobile telephony and Malls and Real estate development and those Tatas and Mittals and Nilekanis and Biyanis etc)development is going to be witten off by a few black sheep here and there.
    I think, lets be frank, this exactly is the problem with us Indians- weak knees,mistrust ,lack of faith exactly when required and fatalistic volatility.
    Hope we can take it contructively.
    ***
    On the other hand while I was off to Mumbai I laid my hands on Nandan Nilekani’s “Imagining India”, Kishore Biyani’s”It happened in India” and most importantly Amartya Sen’s “The Argumentative Indian”.
    Guys, there are more good guys out there then we think.

  4. I know this whole thing is so fantastical. I mean 90% assets are only on paper. That big a number you cannot even give to fraud. If it was 20% one could still understand. But 90% is bizarre. Creative accounting I am told is an accepted fact in India. But, this not creativity, it is conjuring… pure magic (black in color ofcourse!)
    PwC is certainly in deep shit. And Raju obviously has a lot more muck under his carpet than he is admitting do.
    This is really depressing. Esp. for me, I did IT work on Wall Street and that crashed, then I decided to take time off an explore Indian opportunities, now here the Indian IT market is crashing. What cheerful luck!
    I wonder if the India Shining dream is now opening its eyes to an ugly/smelly reality?

  5. // Corporate India has a lot to answer for. It was these people that would go on and on about the corruption in the government, which incidentally they themselves would encourage on a much higher level. //
    This is a very valid point you’ve raised..and so very true… Being from the corporate world myself, I’m very much aware of all that goes behind the scenes when it comes to snatching a deal…There are very few companies who tread the ethical path and yet manage to come up with great numbers..

  6. Hi Shekha Kapur,
    Satyam’s RAM LINGA RAJU’s fraud is the same & similar as Madoff’s in U.S.Thanks to the Depressing World Economy which has brought out these cheaters,and fraudulent experts who have vaccumed the money ,with the help of the corrupt financial system everywhere.If there was never slump in economy ,these crooks would have been awarded billions of dollars in contracts.Price Waterhouse Cooper is a 150 year old Auditing and accounting company,which is the oldest and biggest of all.It offer services to all the biggest and largest companies in the world ;even software companies IBM,Yahoo companies auditor is PWC ,even for Enron . Auditing proffession ,is one of the most believed profession, as stock markets and economy depend on audit reports.I dont know how banks have contributed the Satyam fraud,but i think forgery of Bank papers must be keyrole.There could be fraud in the banking system too,cannot underestimate.

  7. Sir,
    The AUDITORS, REGULATORS and the JUDICIAL SYSTEM.
    I can only read and summarise it as Corporatisation of Politics. It’s much better than finding gunny bags of cash in godowns and bedrooms.
    And we thought computerisation and IT software can store and recall datas without fudging of totals running in 1000 pages and reconciliation with other parties and banks for that matter.
    Nothing has changed since ages ..Looking away when Life is actually happening or when right hand exchanges favours with the Left hand.
    To ERR Is HUMAN.
    Vinod Agarwal – Men will be Men!! GREED and POWER!!

  8. Hi harpreet, perhaps seeing ICICI bank already putting up a half-page Ad of subprime/foreclosure category houses for sale in today’s Tribune in our own Punjab and adding it on to what Shekhar had already written about banks in general thanks to Satyam fraud I got a bit overly pessimistic.
    Perhaps also added to it was the fact of my daily seeing on TV channels a couple of independent directors now of this company now of that resigning. To me they are resigning because they know that the wrong things are going on in their companies too and so they want to leave before they get involved a la directors of Satyam. It too gives enough indication of how the things stand in general.
    I also stand by my judgement that 95% of companies manipulate their books and if the checking starts in right earnest there will not be many to be saved.
    Men are alike everywhere, what percentage of officials in your own department are beyond corruption? More than 5%?
    I know there are a few companies above board but as of now they are exceptions and not the rule.
    Sometimes chakra brings destruction before construction.
    Perhaps manmohan-chidabram-montek trio represented progress of the last (fourth)phase of the third phase while the real progress of real fourth phase in which India will outshine all others will come when new generation takes over obviously after much destruction of the old setups.
    Books are written by exceptional people and about the exceptional people/companies. But they do not represent the rule which comes to manifest much later.
    Anyways, all said, it is good to remain optimistic. And I am, even though Nifty may go to 800. So what, it will climb from there with more force and with more steady, sure steps.
    Harb

  9. HDFC MF didnt know. They thought he earned 3% on ICDs. I vouch for the horror on this man’s face.
    There is a JM Financial report- see if you can get it. I could not read beyond page 1, too many goofs and nits too late.
    And there is that infamous current balance reply- see if you can get the conf call transcript.

  10. Someone should speak in favour of Mr Ramalinga Raju too ( he cant be so bad a person )
    When big corporations all over the world fail , economies flatten and general masses loose jobs we start questioning anything and everything and big bosses like Madoff and our own Ramalinga Raju are found to be culprit . Looking at them from realms of modern thinking where all rules and human conduct is confined to papers and legal frameworks we feel they are culprits but putting on our old spects ( not so old maybe 10-15 years back ) and analysing atleast the cherubic faced Raju and exhausted Madoff we feel they cant be totally wrong doers.
    When big film stars and dirty politicians break law almost evry day and are totally oblivious and ignorant to modern world documented rules they escape very easily and lead a very lavish and fulfilling life , but when rules are broken ( mostly unkowingly and also becuase the modern world rules are so confusing and overlapping ) by hard working people like Raju who apart from building his corporation from a very early age would have lead a very saintly life gets this back this in return .
    Does this teach us that the people who set out challenging paths for themselves and who really want to do general good of entire society always end up like Rajus and Madoffs and people who dont study hard in schools , follow their heart ( mostly for their selfishness ) always get all the pleasures of this world money/accolades ? __ I am no way related to Mr. Raju or work in Satyam but i know the employees of this company are happier than many other Indian companies who confine themselves to the strict framework of corporate conduct and the employees end up being slaves of system , their bosses , western world and at last slaves of their slavish habits.__ May someone show the educated India the real way ahead …we certailnly deserve more than this .

  11. Shekhar,
    I think Mr. Raju has duped everyone. All that you said is based on his much pblicised letter. When we now know that he is involved in corporate fraud , why of all things believe in his letter ?
    There is a parallel and more dangerous truth lurking and be-deviling the investigators at SEBI.
    What if the letter itself is a lie by Mr. Raju ? What if the Monies did exist and they were siphoned off into personal accounts? Afterall , ‘ inflated Profit’ margins may be just a red herring !
    I hope people are considering this angle too. After all in your words , Multinational Banks cannot be duped so easily.
    So, The question to be asked really is – was there Money or was there not ? Most likely , the Monies were siphoned off – with political support.
    Mr.Raju maybe the temporary fall guy – before the slow delivery of justice and political collusion eventually re-deem him. Anything is possible in India !

  12. I concur with Rudra’s views. I also feel that Raju’s confession itself is a lie. It is possible that the cash was recently siphoned off.
    I knew about the dishonesty and corruption in PWC long ago. They are responsible for auditing the selection process of many Big Money Game shows on television. They are also responsible for auditing the selection process of many Bollywood awards. Lol. What a joke!
    Most auditing companies in India like PWC can be bought. It is simple logic that they would tow the line of promoters, simply because they are hired by them! It is common knowledge that there is a conflict of interest here and yet nobody has done anything about it yet!
    Cheers!

  13. Hi,
    Thank you recession for exploding the truth. Damn,Indians are spreading corruption like a virus..We have corrupted the entire world. We did not even spare sports..
    After a few months this news will just fade away and our media will play the song “Raju ban gaya gentle man”

  14. Shekar,
    The mystery behind the cash balance is simple. Let us say you have 100 bucks & you go to X bank & make a deposit. You take the receipt & wait for a month before you apply for a duplicate receipt claiming the original one lost. You withdraw the amount using the duplicate receipt, which will be 100+1 ( interest included). You do the same to the next bank and so on…. For auditing purposes you show the original certificates.
    I agree with you that the Banks have to more careful & the auditors too, but you know the facts are that everything & anything will be compromised by some people if they are taken care off. I know this as I refused as CFO to be part of a similar scheme in a well know but different organisation & was not paid my salary for months before I resigned.

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