Securities and Exchange Board of India (SEBI) has ordered Indian Bank Mutual Fund (MF) to redeem its IndPrakash scheme at net asset value (NAV). This was reported by a leading financial newspaper.

Indbank MF will have to pay nearly Rs 400 m under the NAV for redemption. This is in addition to the Rs 700 m that it will have to shell out for unpaid dividends, over the past three years. It also has to pay Rs 27.5 m under the Indjyothi scheme. Most of IndPrakash investors are depositors of Indian Bank.

Over the years, Indbank MF has cited inability to pay dividend due to lack of profit. It argues that the dividends were only indicative in nature and not assured. However, SEBI has refused to buy this argument and insists that the dividends are assured in nature. It has given the bank one month to outline how it plans to pay back investors.

Indbank, the sponsor of the MF is one of the three weak banks identified by the MS Verma committee in need of capitalisation. While in the past, the government has entertained Indbank's pleas for additional funds, it has turned down its request this time round. As accumulated losses mount (and exceed networth), Indbank is in no position to pay investor dues.

It is strange how Indbank was allowed to continue with its schemes given its precarious financial position. Why did SEBI not step in earlier and demand that Indbank redeem IndPrakash before the redemption date, instead of allowing dues to pile up knowing fully well that the bank was never in any position to pay those dues? This seems to be another classic case of investors paying the price for slackness on the part of the market watchdog.

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