Sebi may call for RBI probe into role of banks, NBFCs

Hyderabad: The Securities and Exchange Board of India (Sebi) may write to the Reserve Bank of India (RBI), which regulates banks and non-banking financial companies (NBFC), seeking a probe against lenders that lent to Karvy Stock Broking without due diligence.

Media report that the loans given to Karvy -- some of which were extended after the firm illegally kept client securities as collateral -- should have triggered red flags in the system. These warning signs include the fact that the loan amounts were abnormally low (versus the collateral pledged) as well as Karvy's own financial situation.

Reports said that lenders had given Karvy Rs 1,200 crore against promoter assets said to be worth Rs 5,000 crore. Karvy also borrowed another Rs 600 crore by pledging client securities worth Rs 2,300 crore. Bankers reserved the client securities as cover for Karvy's entire loan amount, meaning a single default could result in the securities being sold.

Reports quoting sources added that the low loan-to-value ratio, as well as the fact that Karvy only had securities worth only Rs 27 lakh on its own balance sheet, should have raised eyebrows.

Such instances point to clear wrongdoing by banks and NBFCs ICICI Bank, IndusInd Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank and Bajaj Finance had granted loans to Karvy on the pledged client securities. Their total exposure stands at more than Rs 1,800 crore.

The Karvy case came to light after Sebi, in June, passed a circular requiring brokers to segregate their own and client accounts.