A series of bad client trades on castor seeds puts Karvy into a liquidity crunch

Hyderabad based-financial services group Karvy is facing a liquidity crunch as some of its commodity trading clients have defaulted on payments after incurring huge losses on trades in castor seed contracts, sources told Moneycontrol.

"SEBI is trying to resolve in a smooth manner without creating any impact on the market," one of the sources quoted above, said.

Irrespective of whether Karvy's clients pay up or not, the broking firm will have to make the payment to the clearing corporation. Every broking firm has funds deposited with the clearing corporation. If the broking firm is unable to collect funds from its clients and settle its outstanding trades, the clearing corporation will deduct the funds deposited with it by the broking firm and pay the counterparties of the trade.

As a result of the liquidity crunch, other customers of Karvy have not received their payout even ten days after they had squared off their trades.

Sources also said the liquidity crunch faced by the company has led to the salaries of employees of that division being credited with a lag.

A Karvy official told Moneycontrol on the phone that the delay in payments to the clients might be due to the Diwali holidays.

The official denied that the company was facing a liquidity crunch.

"I have been mandated to say that none of your assertions are true at all. Please be very certain that there was no delay in paying staff salaries and per stock exchange regulations, all dues have been cleared off. In fact, in automated exchanges, there is no chance of a default as the counter-party is always the clearinghouse, and not an identified party. To repeat, there is no truth to your statements", the official said.

An investor told Moneycontrol: "I have not received my payout money even after ten days of squaring off my positions. It shows in my ledger but I cannot access it."

Another source said that the parent company, Karvy may have to step in at some point to make good the losses if the clients don't pay up.