NEW DELHI, Dec 19: An Indian parliamentary committee on Thursday blamed the finance ministry and a prominent broker for a scam that triggered the collapse of the stock market in March 2001.

The Joint Parliamentary Committee (JPC) blamed the ministry for its “lack of pro-active role” in controlling the scam before it blew up, and for the fiasco of the US-64 scheme of the Unit Trust of India (UTI), the country’s largest mutual fund.

The probe held tainted stock broker Ketan Parekh responsible for triggering the market crash that saw the erosion of billions of dollars worth of share value, especially in technology stocks. Parekh was accused of diverting funds from cooperative banks, corporates and private financiers to the stock market.

He later dumped the shares, causing the Mumbai Stock Exchange’s 30-share index to plunge from a level of 4,247 points on February 27, 2001 to about 3,000 by April of that year.

The fall hit UTI the most as its popular US-64 scheme, which had heavy equity investments, saw its portfolio holdings being wiped out.

To repay the growing redemptions, UTI borrowed around 50 billion rupees (1.02 billion dollars), which further led to its US-64 reserves turning negative, in turn triggering a crisis in the fund. The UTI board later decided to freeze the scheme.

The JPC report held the UTI management and the finance ministry’s “lack of pro-active role” responsible. At the time, Yashwant Sinha, now foreign minister, was finance minister.

“The JPC report is a damning indictment of Sinha who presided over the stock market scam of 1999-2001 and the disaster which overtook the Unit Trust of India, particularly its US-64 scheme,” Congress party spokesman S. Jaipal Reddy told reporters.

“No one has been more steeped in the culture of transferring responsibility elsewhere than the former Finance Minister and he must go.”

Finance Minister Yashwant Sinha rejected the demand.

“What else do you expect of the opposition?” he asked.

On the stock market scam, the committee took the view there was a nexus between Parekh, banks and corporate houses.

It has recommended this nexus be further investigated promptly by the Securities and Exchange Board of India (SEBI).

The JPC also came down heavily on SEBI for its failure to highlight irregularities in the market and defuse them before the scam happened.

The report said the stock market scam was a manipulation of the capital market to benefit market operators, brokers, corporate entities and their promoters and management.

It said Parikh colluded with promoters of several companies to give the impression to common investors that these stocks were being heavily traded in order to draw their investments.—AFP