Monday, October 5, 2015

Why not have a ceiling for the number of Subsidiaries a holding company can have?

Black money generation takes place in India in several ways. Some of the black money gets into stock market and some large corporates seem to be facilitating this with or without the knowledgeof SEBI. Many Corporates have huge number of subsidiaries set up and the way they prepare the accounts for themselves and subsidiaries can easily camouflage the mix of white and black money in all these companies dealings. Such large Corporates seldom declare any dividend and only prepare accounts in such a way that optimism is built up and maintained. One will be surprised to observe that one such large Corporate GMR Infrastructure has more than 100 subsidiaries and many of them are running on heavy losses and including the GMR. The investors are in fact taken for a ride by such corporates and what SEBI is doing in respect of such Corporates having unlimited number of subsidiaries is lingering in the minds of investors?  One gets a strong feeling that black money gets into the system through such subsidiaries and the whole balance sheets of the Holding Company and subsidiary Companies get  liberally fudged in such a way that the best brains in accountancy cannot fix any problem what so ever. Satyam computers had also several subsidiaries and Global Trust bank had lot of vested interest in various small companies. Both got bust over a period and investors lost heavily. Incidentally the promoters of these Comapnies are from Hyderabad. It is time SEBI takes a view on the number of subsidiaries a holding company can have and the method of accounting of mutual interests among the companies with an eye on the black money component entering in a camouflaged manner. It would be also worthwhile to consider a ceiling for the number of subsidiaries a holding company can have. Ideally, it should not exceed two or three to maintain the credibility and  to have some checks and balances on the inter Company transactions in the interests of the investors and other stake holders.

Dr T V Gopalakrishnan 

2 comments:

FINCOP said...

But GMR is on the Board of the RBI and what due diligence the RBI or GOI has done before inducting GMR on the Board? Yet, the GMR proved itself on creation of 'A' class infrastructure in Airports and Roads and when they move to other areas the regulator should have acted. Irrespective of the size of the firm, it is advisable to have a Counseling centre of the conglomerate of regulators to prevent good money running after bad.

TVG KRISHNAN said...


I tend to agree with Dr Yerram Raju. The fact however remains that the concept of Corporate Governance which was at least once in paper attracting attention of the intellectuals and was a matter of serious discussion, has been given a go by and the success of any corporate or institution depends on the integrity of the individuals who govern them which is also witnessing a fast erosion.