homefinance NewsKarvy case: Sebi denies any relief to lenders. Here’s everything that has happened so far
Karvy case: Sebi denies any relief to lenders. Here’s everything that has happened so far
Indian market regulator, Sebi, has refused to grant any relief to lenders who extended loans to Karvy against shares pledged by the broking firm. Sebi’s rationale for the decision is that the pledging of shares by Karvy did not have any legal sanctity.
Indian market regulator, Sebi, has refused to grant any relief to lenders who extended loans to Karvy against shares pledged by the broking firm. Sebi’s rationale for the decision is that the pledging of shares by Karvy did not have any legal sanctity.
Sebi’s June order had made it clear that clients’ securities lying with a stockbroker in ‘client collateral account’ could not be pledged to banks or non-banking financial companies (NBFCs) for raising funds.
Depositories, on instruction from Sebi and under the supervision of the National Stock Exchange (NSE), had transferred securities worth about Rs 2,013.77 crore to 82,559 clients of Karvy Stock Broking whose shares were pledged with the lenders.
The transfer made by the depositories represents 87 percent of the affected clients. The shares transferred belonged to Karvy clients who had fully paid for them but the brokerage. Sebi in its probe found out that KSBL had pledged securities worth Rs 2,300 crore of over 95,000 clients with Bajaj Finance, ICICI Bank, HDFC Bank and IndusInd Bank as collateral to raise over Rs 600 crore in loans for itself. KSBL was able to pledge the securities belonging to its clients through the PoA (Power of Attorney) given by the clients to the broking firm.
Sebi on November 22, prohibited Karvy Stock Broking from taking any new clients with respect to stockbroking activities for alleged misuse of clients' securities. In a 12-page ex-parte interim order, Sebi’s Whole Time Member, Ananta Barua said there is a need for urgent regulatory intervention to prevent further misuse of clients' securities.
Apart from prohibiting the entity from taking new clients in respect of its stockbroking activities, Sebi also directed depositories (NSDL and CDSL) to not act upon any instruction given by KSBL in pursuance of power of attorney given by its clients. The market regulator also said that the depositories and stock exchanges shall initiate appropriate disciplinary regulatory proceedings against Karvy Stock Broking for misuse of clients' funds and securities as per their respective regulations.
IndusInd Bank, Bajaj Finance, HDFC Bank and ICICI Bank had moved the Securities and Appellate Tribunal after the National Securities Depository transferred the client shares wrongfully pledged by Karvy Stock Broking back to client accounts. The Securities Appellate Tribunal (SAT) instructed National Securities Depository (NSDL) to halt the transfer of the balance investor securities that Karvy Stock Broking had pledged with lenders. The tribunal further directed Sebi to hear out the lender's concerns by December 4 and pass an order by December 10.
Lenders presented their concerns around Sebi’s primary order to the market regulator. Bajaj Finance, ICICI Bank, HDFC Bank & IndusInd Bank sought no further orders or modifications to Sebi’s primary order going forward. Lenders further asked for a freeze on any further transfer of securities that had been pledged with them by Karvy Stock Broking. Further asked Sebi to restore the pledge on the securities which already had been released into clients’ accounts.
HDFC Bank stated that in the current situation either Sebi alone or along with NSE and NSDL should compensate the bank with the amount which it could have recovered from the shares pledged by Karvy Stock Broking. Bajaj Finance had extended loans worth Rs 345 crore, ICICI Bank extended loans worth Rs 700 crore. HDFC Bank’s outstanding exposure to Karvy Stock Broking stands at approximately Rs 208.5 crore whereas IndusInd Bank’s outstanding exposure stands at Rs 159.6 crore.
First Published: Dec 16, 2019 6:21 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
BJP is planning to ban RSS, says Shiv Sena (UBT) chief Uddhav Thackeray
May 18, 2024 8:01 PM
Punjab Lok Sabha elections: Complete list of Congress candidates
May 18, 2024 4:08 PM
Punjab Lok Sabha elections: Check full list of AAP candidates and constituencies
May 18, 2024 12:59 PM
PM Modi, Rahul Gandhi election rallies in Delhi today: Here are the routes to avoid
May 18, 2024 11:28 AM