Karvy crisis: Bankers raise concern with NSE and Sebi over exposure

Banks and financial companies including ICICI Bank and HDFC Bank have met senior officials of the stock exchanges and raised concern over their exposure to Karvy’s companies, said two people privy to the development. The bankers have discussed the matter and ascertained the knock-on effects of the order against the broking house by the Securities and Exchange Board of India (Sebi) last Friday.

Sebi barred Karvy Stock Broking (KSBL) from taking on new clients over the alleged misuse of clients’ securities.

According to sources, the banks wanted to know the magnitude of the problem and how far it was from default. “The bankers are worried about the transactions with real estate mentioned in the Sebi order and wanted to know their nature,” said a source, adding that they were consulting the market regulator on this. 

Sources said the bankers were examining the situation and learnt to have been working on measures to recover funds if the brokerage faced default. 

Karvy’s companies have taken close to Rs 2,900 crore from banks, including ICICI Bank, HDFC Bank, and Lakshmi Vilas Bank.

Another talking point was the National Stock Exchange (NSE) preliminary report, which has raised suspicions on transactions worth Rs 2,000 crore. Banks were anxious whether more transactions would tumble out because the exchange would take a few more days to submit its final report in the case. 

The NSE assured lenders of a speedy and timely remedy of the matter. 

In the order, Sebi cited the NSE report in which KSBL misused power of attorney given by its clients. KSBL has sold client securities in the market in a disguised manner through its own and controlled entities.  

Banks are in talks with Karvy, which has not defaulted yet and the management has said there is sufficient capital to pay its creditors.