ICICI Bank, IndusInd Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank and Bajaj Finance had granted loans to Karvy on the pledged client securities. Their total exposure stands at more than Rs 1,800 crore.
The Securities and Exchange Board of India (SEBI) has rejected a plea from the lenders of Karvy Stock Broking (KSBL) that requested depositories to return the securities pledged by the broker to them.
ICICI Bank, IndusInd Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank and Bajaj Finance had granted loans to Karvy on pledged client securities. Their total exposure stands at more than Rs 1,800 crore.
According to an order issued by the regulator on December 13: "In the absence of corresponding trade instruction, the pledging of securities of such clients is also unauthorised and, hence, in law not treated as a valid pledge."
ICICI Bank, IndusInd Bank and HDFC Bank had moved the Securities Appellate Tribunal (SAT) early in December stating that many of these securities had been used to borrow money from them, and pleaded with the tribunal to either get the securities back to them or put them in an escrow account to protect their funds.
They also argued that pledged shares cannot be transferred without their consent. However, SAT directed SEBI to hear plea of banks on December 6 and pass an order by December 12.
"In this case, it has been observed that there were neither any instructions from the clients to KSBL and nor any corresponding trade on the stock exchange. Thus, there was no occasion to use/activate the PoA by KSBL," read the order
"The securities worth around Rs 2,300 crore of more than 95,000 clients, were unauthorisedly transferred into this account by KSBL to generate funds for its own/group entities use," said NSE in the interim report, which formed the basis of the SEBI order.
"The issue whether lenders exercised proper due diligence or complied with applicable laws pertaining to loans against shares, can be looked into by the concerned regulator if so deemed fit," read the order.The securities held by over 83,000 clients were given back to them on December 2 after SEBI asked the National Securities Depository (NSDL) to do so, which prompted lenders to move SAT and secure an interim relief on further transfers.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.