Satyam probe turns to role of banks in fraud

The probe into the Satyam (SATYAM.BO : 29.95 0) scam has turned the spotlight on banks as investigators and its newly appointed auditors verify the company's numerous accounts. The government is trying to ascertain how much cash actually exists in Satyam's accounts, whether the bank certificates presented to auditors were forged, and whether bank employees colluded with company officials.
Satyam has claimed deposits of nearly Rs 180 crore for the year ended March 2008 in international branches of several global banks. These include Banco do Brasil, BNP Paribas, Citibank, Citibank International, China Merchants Bank, Dresdner Bank, HSBC Bank, Kookmin Bank, KSB Bank, Mitsui Sumitomo Bank, UBS, UniCredit Banca, United Bank, Wachovia Bank and Woori Bank.
The company has stated that another Rs 3,308.41 crore had been parked in long-term fixed deposits. Although the break-up of these investments is not available, Satyam has listed Bank of Baroda, BNP Paribas, Citibank, HDFC Bank, HSBC and ICICI Bank (ICICIBANK.NS : 441.1 0) as it principal bankers.
When it comes to its current account details with foreign banks, Satyam's annual report not only lists the opening balance for the financial year against each account held, but also the maximum balance during the year. Interestingly, the company showed a balance of Rs 1,166.89 crore in various current accounts that earn zero interest, which caught the attention of government investigators and regulators. B Ramalinga Raju, former chairman of Satyam, had said that the company had Rs 5,040 crore in non-existent cash and bank balances on its books.
Meanwhile, Satyam's new board on Wednesday appointed KPMG and Deloitte as its new auditors to assist in the restatement of accounts, while previous bookkeeper Price Waterhouse said its audit of company has now been rendered "unreliable" after Raju's admission of fraud. According to Deepanker Sanwalka, a partner and national head of forensic services at KPMG, companies often include cheques in hand and remittances in transit to inflate cash balances. Another way is to forge bank statements to show fictitious reconciliation statements, he said.
The transactions pf Satyam's hundreds of accounts with some 50 banks and would be probed to determine whether any bank officials colluding with the company. "If employees of any bank connived with officials of Satyam, it is the responsibility of the bank to take action. It is highly unlikely that the banks themselves colluded with Satyam in this fraud. But if so, action can be taken under the Banking Regulation Act, 1949," a source closely tracking the banking regulator said.
At a meeting with senior Cabinet ministers on Tuesday, Prime Minister Manmohan Singh discussed Satyam's liquidity position. "The idea is to pore over each transaction the company has had with banks and verify the authenticity of each bank certificate," an official in the know said. The official said it would take around two weeks to arrive at a preliminary assessment of bank balances. Satyam shares pared early gains of 8.8% on the BSE (^BSESN : 9370.49 0) on Wednesday to end down 4.2% at Rs 29.95.