Similar to any large financial group spread across different geographies and various market segments, Financial Technologies Group too faced problem with on of its subsidiaries, the NSEL. The causes behind this and those who contributed to it are still under investigation.
However things have unfolded, it appears that the problem a result of a wide range of factors. Members/brokers who paired the commodities trading contracts and the regulator not analyzing the data provided to them every fortnight by the exchange. The problem emerged when the government stopped, in July 2013, with immediate effect, further issuance of new contracts by NSEL that led to liquidity pressures and settlement problem.
There is no systemic risk, and it is about 13,000 trading clients and 24 defaulters who were caught up in the liquidity problem. Nearly 85 percent of the settlement obligation is from seven defaulter members and about 6 percent of 13,000 trading clients account for 69 percent of the claim.
The problem at NSEL was manageable. Nearly 5600 crore of assets of the defaulters that have been frozen and remain with the investigative agencies, (this is nearly as much as the settlement value of Rs 5690 crore), is available for disposal and distribution among the trading clients once the investigations are complete and clarity on legal process emerges.
The reactions to the problem, however, remained one sided, all of which have been directed against the FTIL. FTIL has nothing to do with any of the trading clients and never met any of them with regards to NSEL business. It was going by the briefings and reports as provided to the NSEL Board, by NSEL’s management, that was all well and the minutes of which were noted in the FTIL Board meetings with effect from March 2011 when NSEL became a material subsidiary of FTIL. Immediately after the problem, NSEL came out with an interim plan to support the small trading clients, with exposure less than Rs 10 lakh , utilizing the without prejudice loan of Rs 179 crore granted by FTIL as a goodwill gesture. NSEL reconstituted the Board and revamped the management. It extended complete support to investigating agencies.
It is NSEL’s parent company FTIL that suffered the most from the problem. Financial Technologies has always strived to make its growth a story for India to take pride in. They should be given a fair chance to explain their stand, recover and build.
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