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finance | IST

Lenders are recalling loans from brokerages after Karvy scam, says Deven Choksey

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The Karvy issue deepened further after one of its lenders, Bajaj Finance, was understood to have moved the Securities Appellate Tribunal (SAT) against National Securities Depository Limited’s (NSDL) decision of transferring securities back to clients. Deven Choksey of KRChoksey shared his views on the matter in an interview with CNBC-TV18.

The Karvy issue deepened further after one of its lenders, Bajaj Finance, was understood to have moved the Securities Appellate Tribunal (SAT) against National Securities Depository Limited’s (NSDL) decision of transferring securities back to clients. Deven Choksey of KRChoksey shared his views on the matter in an interview with CNBC-TV18.
“The lenders are recalling loans and are asking the brokers to pay back the loans for the shares that they have lent. Even though the shares have been lent by the brokers, which belongs to their own books, the lenders are asking for a money back and that process has already started last week itself. It has created a sort of panic.
“Broker is required to not pledge client shares. That is fundamentally very clear and that is how it should be. You cannot be using somebody else’s property and create the finance against that particular property. That is the fundamental law. Unfortunately, the practices have been quite different than the law is. So certainly this is going to create the problem. How exactly this problem would get resolved, there are solutions available provided banking regulator as well as security regulators both of them want to listen to it."
He continued: “On one side, the lending activity is coming under the purview of the banking regulator, which is the Reserve Bank of India (RBI) and on the other hand securities activities come under the purview of the securities regulator which is the Securities and Exchange Board of India (Sebi) and both of them are a distance apart as far as the regulation is concerned. This is going to create a much larger issue. This issue has been kept under the carpet for a very long period of time and it is now coming on to the surface.
"Probably it will have the solution also because when they will come to know that two different regulators are working for the same kind of proposition and is working counterproductive to the investor, certainly the ministry will take a call and bring the regulator under one fold."