Stock market regulator the Securities and Exchange Board of India (SEBI) has banned Karvy Stock Broking over client defaults worth Rs 2,000 crore. It has been barred from taking on new clients and executing trades for existing customers.
C Parthasarathy, Chairman, Karvy Group shared his views on the developments in an interview with CNBC-TV18 on November 25.
“We have 21 days to reply to SEBI but the situation right now is that all terminals are working, all our customers and all our branches and all online customers are able to trade freely and there is absolutely no issue as far as the clients are concerned. It has been business as usual since morning and we hope it continues to be the same,” he said.
“About the order that we cannot get new clients or we cannot open new accounts and we cannot generate unique client codes as soon as the new client is acquired, that is the restriction that has been imposed as far as the order is concerned. The second thing is with regards to the delivery instruction slips – barring those deliveries that will facilitate delivery of securities on behalf of various customers, we are not allowed to automatically use power of attorney to transfer any securities on an off-market basis. There is a little bit of clarity that is still to be obtained but by and large this is what the order stipulates,” he added.
He continued: “We have substantially reduced the pledge of shares and we are in the process of reducing the pledge of shares even further. We are in discussion with various bankers and we believe that we can reduce it substantially over the period of time.
“The size of the book will be about Rs 400-500 crore and in September it was about Rs 1,100 crore."
On delays in pay-out to clients, he said: “Delays have been small, there have been delays because the focus has been on analysing all these securities, the delays have been very small, it would be about Rs 20-30 crore as of now and we hope to clear this by the end of this week.”
On not reporting a particular account number, Parthasarathy said, “We have to report all accounts. These depository participant (DP) accounts are available with the depositories and with the exchanges. So where is the question of hiding these accounts?
“There is no way that anybody can cease disclosure because these were available with the various regulatory agencies. It will be foolish on the part of the broker or anybody else not to disclose it and because it has not been disclosed, it has been accidental and we have corrected it,” he added.
On diversion of funds to Karvy Realty, he said: “Karvy Realty Ltd is a subsidiary company of Karvy Stock Broking Ltd and Karvy Realty has been in existence for the last 10-15 years. Some of the investments that we have made in other subsidiary companies have been done through Karvy Realty with the objective of protecting the net worth of Karvy Stock Broking.
"This has been done for a very long time. Investments to these companies and loans to these companies have been given over a 12 year period. This has been a vehicle, which has been used for investing in other subsidiary companies.”
Money raised against pledged shares was used for working capital he said. “We were using it on an ongoing basis for working capital requirement,” he added.