The government has snubbed Ind Bank's offer to bail out Ind Bank Mutual Fund, which could otherwise default. This was reported by a leading financial daily.

Indian Bank had piled up accumulated losses of Rs 31.8 bn by FY99, which had eroded its entire networth. In June, the bank had committed to pay unpaid dividend of Rs 700 m for the Ind Prakash scheme, in its capacity as the sponsor of the scheme.

Ind Banks's scheme comes up for redemption in November, when it will have to pay investors indicative dividend for three years. But as the government refuses to extend financial help to the bank, the most likely scenario is a default.

What is surprising is why SEBI had not forecasted such a scenario earlier, given the fact that a default was always on the cards. Indian Bank losses had come to light more than two years ago, and this was bound to have an adverse affect on its MF business. SEBI should have seen the default coming much earlier, and should have taken steps to correct the situation in tandem with the government.

The scare of a default is just what the MF investor does not need at this point, when the MF segment is witnessing explosive growth. After the Morgan Stanley and CRB MF debacles, investors are once again flocking to MFs on the back of impressive performances of the stockmarkets. Moreover, passiveness and laxity displayed by SEBI, the market watchdog, could shatter the investor's confidence in it, and will erode its credibility in the investors' eyes. Even earlier there were some concerns voiced from several quarters that SEBI had reacted belatedly during the CRB scandal, and failed to protect investor interest.

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