Sebi relief unlikely for karvy lenders

The Securities and Exchange Board of India (Sebi) is unlikely to provide any relief to the four embattled financial institutions that had lent to Karvy Stock Broking, which, in turn, had placed client securities as collateral.

The regulators stand has been that "since the lenders had never questioned karvy on the ownership of the pledged shares and the rightfull owners they should be held responsible for this negligence"said a person with knowledge of the master.

A large financial institution is expected to have a proactive approach by checking from depositries about the shares being offered by brokers for pledge and whom they belong to.

The Securities Appellate Tribunal on Wednesday refused any immediate relief to top lenders who had petitioned against the transfer of securities held with Karvy Stock Broking Ltd back to the clients.

ICICI Bank, HDFC and Indsnd bank had contended that many of these securities have been used to borrow money from them and had asked the tribunal to either get back the securities to them or freeze them in an escrow account. karvy did not disclose the depository participant account to either the exchanges or depositries .The lenders have told the tribunal lending against pledged shares was common practice and there was no reason to disbelieve karvys claim that it owned these shares.

The rule was to come into effect by aug 31 but its enforcement was postponed by another month and brokers were given time till sept 30. The provision  means brokers are obliged to revoke the pledge by oct 1.