In a setback to the lenders who lent funds to Karvy Stock Broking, the Securities Appellate Tribunal (SAT) Wednesday refused to give any immediate relief on their plea against the transfer of securities held with Karvy back to the clients or transfer them into an escrow account.
A SAT bench comprising MT Joshi and CKG Nair refused to give any relief to ICICI Bank, HDFC Bank and IndusInd Bank beyond the order in the Bajaj Finance plea and instead asked them to approach Sebi by December 6. It also asked Sebi whole-time member Ananta Barua, who issued the order against Karvy on November 22, to give a personal hearing to the aggrieved parties and pass an order by December 12. Lenders had given loans to Karvy which pledged these shares with them as collateral. The securities that the National Securities Depository Ltd (NSDL) transferred back to investors on December 2 were originally pledged by Karvy with banks to raise funds without taking the permission of the owners.
In the case of Bajaj Finance which first approached SAT, the Tribunal, on Tuesday, asked Sebi to hear the financier latest by Wednesday, and directed Sebi to pass a fresh order by December 10.
ICICI Bank, HDFC Bank and IndusInd Bank had contended that many of these securities had been used to borrow money from them and had pleaded with the tribunal to either get back the securities back to them or put them in an escrow account to protect their funds. The case pertains to the securities held by Karvy, which were used by the brokerage for borrowing courtesy the power of attorneys that they held.
Lenders’ business to be impacted; ball in Sebi’s court
The banks had contended that many of the securities in question had been used to borrow money from them and had, therefore, pleaded with the tribunal to reinstate the securities back to them or put them in an escrow account. The case pertains to the securities held by Karvy, which were used by the brokerage for borrowing, by way of the power of attorneys that they held. As most of the shares were kept as securities for loans given by banks to Karvy, any “unilateral” transfer of shares will have a major impact on their lending business, banks had said in their plea before SAT.
On Monday, NSDL said nearly 90 per cent — 82,559 — of duped investors got back their securities and the remaining ones would get their securities after clearing their dues, forcing Bajaj Finance to move the SAT and secure an interim relief on further transfers. Private sector banks joined the Bajaj Finance petition on Tuesday against transfer of shares to investors. As most of the shares were kept as securities for loans given by banks to Karvy, any “unilateral” transfer of shares will have a major impact on their lending business, banks told SAT.
Banks and finance firms have Rs 1,415-crore exposure to Karvy Stock Broking, which was banned by the Securities and Exchange Board of India on November 22. ICICI Bank has the maximum exposure of Rs 875 crore which was created only on October 1, 2019. IndusInd Bank has an exposure of Rs 105 crore, HDFC Bank Rs 195 crore, DCB Bank Rs 55 crore and Axis Bank Rs 85 crore, as per RoC filings. The total value of the securities unauthorisedly pledged by Karvy was estimated to be around Rs 2,800 crore.