Every commentator is shocked and horrified about Ramalinga Raju?s revelations. But talk to people informally and you will find that nobody is that surprised. The real fear is how many more skeletons are going to tumble out of various cupboards. A financial analyst says that he knew something was seriously wrong when he read about the Maytas deal. His point is nobody keeps Rs 5,000 crore cash in their books. They put it in fixed deposits or mutual funds. ?Or you keep cash in one company and borrow it.?
The consensus is that a company cannot get away with this kind of racket unless the auditors are with it. And also perhaps the banks. There may not have been any active collusion. But they were certainly careless. Once the books are examined and investigations are completed, we might get a clearer picture.
How are books cooked? In the service industry it is fairly simple. The company can claim that it has got ten new contracts. And that they are worth $500,000 each. They will all be fictitious. A $10 million contract will attract a lot of attention. A $1 million contract has to be entered in the balance sheet. But one can get away with contracts of smaller numbers. It is difficult to fudge figures like this in the manufacturing industry. Although figures are regularly inflated in manufacturing too to meet 31 March deadlines, it is not possible to pretend that one has produced 10,000 additional automobiles. There are simply too many elements linked to each other in the manufacturing process. But in the service industry, the raw material is only people. Our software business is spread all over the world. So you can always claim that you got business from say Finland, or some Caribbean island. It is quite impossible to find out.
But the employees are not likely to be aware of what?s going on. People in the know will be business heads, the CFO and the chairman. With the pressure on valuations, these companies have to show quarter on quarter increase in turnover and profits. They have to show 30% margins. In the first year they show Rs 100 crore as money which has to be received. Then inflate it to Rs 130 crore. As the company can?t keep showing debts, they then say they have realised the amount. In Satyam?s case, how did the banks give certificates and why didn?t the auditors visit the banks to check the fictitious Rs 5,000 crore?
In an earlier era, a Hyderabad based private bank which was headed by a dynamic banker (which has since then gone under) was known to have given their stationery to clients who would type out their complete transactions. Says a finance industry professional, ?just examine how cosy the auditing firms? relationships are with many Indian companies. In many cases the auditors are taken care off and are paid outside. However, if a small company wants to cheat, no auditor can do anything about it. But getting away with Rs 5,000 crore is not possible.? He also suggests that may be there should be a panel of 50 auditors who should be appointed by three year rotation by the companies.
Then there is the well known political-business nexus about which everybody knows but will not comment. There are deals worth thousands of crores being talked about. Where will these funds be parked? The general consensus is that businesses like software, real estate , logistics, transportation, all come handy. Many finance professionals point out that many grey areas exist in Indian companies? balance sheets including public sector ones. They have the pressure to attain the Navaratna status!
Ramalinga Raju has claimed that neither he nor his family have benefited by inflating the figures. However, the fact remains that the share prices shot up and he and his family started as 100% owners and slowly disinvested. Why did they do that? Was the software company started to fund land acquisitions? Again all the facts will become clearer once the investigations are over. Unless the promoters decide that they will be totally honest and be completely transparent in all their dealings, nothing much is likely to change in corporate India.
sushila.ravindranath@expressindia.com