Mumbai: Pravin Kumar Tayal, the promoter of Bank of Rajasthan Ltd (BoR), has denied any wrongdoing after the capital market watchdog turned up the regulatory heat on him by banning 100 entities it said were related to the bank’s founders.

The Securities and Exchange Board of India, or Sebi, also said late on Monday that Tayal and his associates actually own 55.01% of BoR and not 28.60% as has been claimed by the Tayal group.

The 100 entities that were banned by Sebi from dealing in the securities market allegedly violated a number of rules, including takeover norms, and engaged in fraudulent trade practices, the market regulator said.

Tayal denied the allegations. “We do not hold (a) 55% stake in the bank nor are these entities related to us. These are not our entities. We will reply to the order," he said.

Graphic: Paras Jain/Mint

The Indian central bank had imposed a penalty of Rs25 lakh on 25 February on BoR for a series of violations including “non-adherence laundering guidelines in the opening and conduct of certain accounts", “irregularities in the conduct of accounts of a corporate group", and “failure to provide certain documents sought" by the regulator. It has also ordered a special audit on the bank.

“We will take the views of experts and clear the misunderstandings of Sebi and RBI," Tayal said. “Both are important to us.’’

In an order released late on Monday night, Sebi said that the 100 entities had connived with the promoters of BoR to mislead investors about the shareholding pattern of the bank.

While the bank, controlled by the Tayal group, had been declaring a reduction in promoter holding from 44.18% in June 2007 to 28.61% in December, Sebi has found the decline in promoter’s stake “clearly false". Under RBI guidelines, promoters of banks are required to pare their stakes to 10%.

The holding of the promoters along with their “front entities" had actually increased from 44.71% in June 2007 to 60% in March 2008 and stood at 55.01% in December 2009, according to Sebi.

While such an increase triggers an open offer, the bank skipped Sebi norms and made no disclosures about it.

“…it is prima facie established that the entities had acted in concert with the promoters of BoR with the common objective of substantially acquiring shares/voting rights in BoR indirectly for the promoters for the purposes of camouflaging their acquisition," Sebi said.

BoR shares fell 6.66% to close at Rs62.35 on Tuesday while the Bombay Stock Exchange’s benchmark Sensex index fell 0.29% to close at 17,052.54 points and its banking index dropped 0.15%.

G. Padmanabhan, the RBI-appointed managing director and chief executive officer of BoR, is confident that the Sebi action will not have any impact on the bank’s fund-raising plans.

BoR plans to raise Rs250 crore through a placement of shares with qualified institutional investors. The bank will take shareholders’ approval for the fund-raising exercise on 11 March.

This fresh capital infusion would dilute Tayal’s stated holding from 28.6% to around 20%. “Unlike retail investors, the institutional investors take a very different view. They look at the inherent strength of the bank," said Padmanabhan.

In the December quarter, BoR posted a net loss of Rs44.7 crore. Its capital adequacy ratio, or the ratio of capital to risk-weighted assets, stood at 11.29% against the regulatory requirement of 9%. Its non-performing assets as a percentage of loans was 1.05%, in sync with the industry.

“The Sebi order will have no impact on the bank," Padmanabhan said. “It only impacts a majority shareholder group and this group is in no way involved in the day-to-day running of the bank."

According to him, the dominant shareholder group has to comply with the regulations. “Even if a group holds (a) majority stake in the bank and gets representation on the board, it cannot influence the working of the bank as banking norms are very stringent. This is a professionally run bank," Padmanabhan added.

The banking regulator has appointed Deloitte Haskins and Sells to audit BoR’s lending policy while Deloitte Touche Tohmatsu has been hired to audit the information security system.