Hindsight is always 20/20, but now that arrested former chairman B. Ramalinga Raju says that Satyam Computer Services Ltd's cash and bank balances didn't exist, there does seem to be something very strange about them. From December 2006 till September 2008, the company's deposits with scheduled banks remained almost the same, at around Rs3,300 crore. On the other hand, the company's current account balances with scheduled banks kept on rising over the period, from Rs238.84 crore as on 31 December 2006 to Rs1,841.17 crore as on 30 September 2008. (The accompanying chart shows the movement of Satyam's bank balances over the period.)
A similar pattern is found in balances with non-scheduled banks, but the amounts involved are much smaller???on 30 September, balances in current accounts with these banks were Rs140.62 crore, with Rs1.02 crore being in deposits.
If the figures are taken at face value, what this indicates is that Satyam's management was incredibly lax about the return from its investments, preferring to keep huge amounts in non-interest-paying current accounts. Most analysts seem to have paid scant heed to this issue. During the conference call on Satyam's September quarterly results, however, Kawaljeet Saluja, a perceptive analyst from Kotak Securities, did raise the question and was fobbed off by the Satyam's chief financial officer (CFO), Srinivas Vadlamani, with a rather unsatisfactory answer. The conversation is very interesting and the relevant extract from the transcript is as follows:
Saluja: Any specific reasons why you have $500 million (Rs2,445 crore today) parked in current accounts, which does not yield any interest?
Vadlamani: No, that is basically, as on the quarter ending, but subsequent to that the amount goes to the deposit accounts; majority of it's in deposits now.
Saluja: But Srinivas, if I look at, you know, deposit account for the last four quarters that number has remained absolutely flat and most of the incremental cash flows have been parked in current accounts and this is not something (that) is this quarter trend; would you highlight the reasons for it?
Vadlamani: No, basically what will happen is this amount will be in different countries and then we would bring them to India based on the needs; some of them are in overnight deposits and all that; so now we have kind of placed them into normal term deposits. So next quarter onwards, we will see that as part of the deposits.
Saluja: So what are your yields on excess cash? (Will they) go up because your yields are very low compared with the industry, it is just 5.3%, whereas the growing yield was 9% to 10%?
Vadlamani: Yeah, right now our yield is roughly around 8% or so and we expect that to go up because currently overall yield on the deposit rate in the past one month or so has gone up. So everybody will be benefited by that.
Saluja: Okay and a second, you know, given the fact that the stock is now more or less trading at valuation which does not imply any growth in propensity, what will make you consider a buy-back of stock?
B. Ramalinga Raju: Well, it goes without saying that we constantly evaluate as to what kind of the view we can put our liquid funds positions to and there are many options in front of us, particularly around acquisitions, around possibility of a buy-back, around possibility of special dividend so (on) and so forth.
Again, with the benefit of hindsight, Satyam CFO Vadlamani is clearly being very evasive. What he seems to be saying is that while the current account figure is high at the end of the quarter, the amount goes into deposit accounts thereafter. That is clearly not borne out by the numbers quarter after quarter. Nor is the phenomenon just confined to four quarters, but the amount in deposits has remained more or less the same since December 2006.
Does it indicate that the fudging in bank balances started from December 2006? Did they find it easier to fudge current account balances compared with fixed deposit receipts? What it certainly does mean is that such a cavalier attitude towards cash by any company should be a reason for suspicion in the eyes of analysts and auditors.
Graphics by Paras Jain / Mint