Karvy case | SEBI raises estimated misuse to Rs 2,800 crore: Report

Karvy Stock Broking has misused clients securities' worth Rs 2,8000000000, higher than the market regulator's initial estimate of Rs 2,0000000000, Mint reported “It is also likely that (the) amount would increase further but that would emerge only after the forensic analysis is completed,” a source told the publication. All the clients’ securities were pledged with bank and non-banking financial companies (NBFCs), a source added. The Securities and Exchange Board of India (SEBI) has banned Karvy from taking new clients over suspected illegal use of clients’ shares. The brokerage allegedly diverted the funds to its real estate arm. Moneycontrol could not independently verify the story. Banks have fund-based exposure of Rs 1,4150000000 to Karvy and some more in non-fund-based guarantees, the Mint report said. Lenders are seeking ownership of the pledged shares, but SEBI is unlikely to consider the request, the report said. Clients would be at a disadvantage if the banks receive ownership of the shares and invoke the pledges, a source told the paper. “Right now, it is unclear how much of the bank exposure is based on Karvy’s securities and how much is based on client pledges. If the pledges are invoked on some client securities, then it is the clients who would need to bear huge losses. In that scenario, even investor protection fund would not be enough.” the source said. Banks are exploring other legal options, including a Special Appellate Tribunal (SAT) or high court appeal, the report added.