However, the Indian authorities appear unlikely to exact the extreme penalty of preventing them from doing business in the sub- continent. They may yet take action against the two banks and ANZ Grindlays and BankAmerica, which were also criticised in the report, but it could include fines and regulatory penalties.
D R Mehta, deputy governor of the Reserve Bank of India, confirmed that the central bank would start action against foreign and Indian banks. He said it would take into account the findings of a separate committee, headed by the deputy governor R Janakiraman, and special audits it had ordered on the four foreign banks.
Ram Niwas Mirdha, chairman of the committee of 30 MPs, said when presenting his report that the recommendations were not a signal for closing foreign banks in India.
'We need foreign banks . . . We do hope they will submit to authority,' he added. Standard's share price slipped 15p to 1,179p.
The much-leaked report blamed both Indian and foreign banks, but said the foreign institutions were 'initiators of the scam as well as the major players'. The MPs said the banks misreported transactions and illegally diverted government securities from the money markets to stockbrokers, who used the funds to speculate in the equity market.
When the fraud was discovered in April 1992, the stock market crashed and millions of Indians lost large parts of their life savings.
The scandal cost Standard pounds 305m in bad debt provisions and other costs, though it has retrieved nearly pounds 40m in legal actions. The bank said it would be 'manifestly unjust' to single out foreign banks without penalising Indian banks also criticised in the report.
A spokesman said the bank did not expect suspension of licences to result from the committee's recommendations, and added: 'We have made the closest possible investigation that we can to make sure that is not the government's view.'
Citibank said: 'We have been in India for 91 years and we do not expect to be leaving.' It had pulled out of its fiduciary business in India but the rest of its operations remained healthy.
Barry Northrop, Standard's special representative for India, said it was astonishing that the report failed to mention alleged fraud committed against the banks by their own employees, leading to several criminal prosecutions.
The report alleged that controls were weak at Standard, partly because the demarcation of responsibilities between 'front' and 'back' offices became blurred.
Standard conceded it had violated central bank guidelines, but so had Indian banks and it did not believe it had broken Indian laws.
'Clearly the committee has had difficulty in understanding, for instance, that the weakened controls . . . resulted from criminal collusion by former employees in conjunction with a broker, which was at the heart of the fraud against the bank,' Standard said.
A spokesman in London also urged the government and its agencies in India 'to keep up the search for the missing assets and make sure they are restored to their rightful owners, one of which is Standard Chartered'.
Standard has begun a number of lawsuits to retrieve funds lost in the scam and has already won pounds 30m from India's National Housing Bank and pounds 8m from a smaller institution. Citibank is among the targets of Standard's legal actions.
The report also savaged the Indian finance ministry and central bank. It said: 'That supervision failed from top to bottom is self-evident.'
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