Karvy Once Again Buying Time and Negotiating a Foreign Buyer for Its Data Management Business
Six months after Karvy Stock Broking Ltd (Karvy) was expelled by the National Stock Exchange (NSE) and declared a defaulter, there is almost no legal action against the firm by retail or institutional investors. This is because C Parthasarathy, its group chairman, has reached out to people with an assurance that the firm is close to selling its data management business, Karvy Data Management Services Ltd (KDMSL) and hopes to raise almost Rs1,000 crore, say people who are aware of developments. Meanwhile, Amitabh Chaturvedi has reportedly quit as group CEO (chief executive officer) of Karvy.
 
When contacted, Mr Parthasarathy confirmed  the development and sounded hopeful “there should be some progress in a month’s time or even earlier,” but he could not share more details at this time.
 
Some large investors contemplating litigation against Karvy were told that litigation and any coercive action would scuttle the deal and eliminate any chances of investors getting their money back. We learn that even the six large institutional investors like Axis Bank, and Bajaj Finance are holding back civil and criminal action in anticipation of a sale and assurance of repayment. 
 
While investors have been told that National Stock Exchange (NSE) and the Securities and Exchange Board of India (SEBI) were made aware of the developments, here is NSE’s response to our query about negotiations to sell the data management company: “Karvy has, for more than a year, claimed that they have finalised a deal with UK-based non-resident Indian (NRI) to gain full control of KSBL associate, subsidiary company KDMSL but we are not aware of the current status. However, NSE and other exchanges have monetised trading and demat accounts of Karvy. NSE, jointly with other MIIs (market infrastructure institutions), completed the transfer of the trading and demat accounts of Karvy to another stock broker and depository participant, through a formal bidding process.”
 
According to sources, after some payments have been made, the amount Karvy still owes to retail investors is around Rs480 crore. The Karvy default was earlier estimated at Rs1,000 crore but we learn that some small payments have been made and securities released bit by bit in the intervening period. It is still not clear at this stage whether the sale proceeds from the deal would cover the amount owed to all. 
 
Interestingly, NSE had expedited proceedings and begun to pay eligible investors up to Rs 25 lakh each on account of the Karvy default since January this year (Read: Karvy Investors Start Receiving Their Money from NSE's IPF in Record Time after Broker Expulsion). 
 
In November 2020 the NSE had claimed that it had settled claims worth Rs2300 crore of 2.35 lakh investors (Read: Karvy Default: NSE Settles Claims Worth Rs2,300 Crore of 2.35 Lakh Investors; More Expected).
 
Despite this, the claims of a large number of investors have been rejected and they were planning legal action collectively. But this group has also been assured of repayment once the sale goes through.
 
It has already been a long wait for investors, since Karvy’s trading rights were suspended as far back as December 2019. However, it was expelled only a year later. Interestingly,SEBI has initiated no action against any of the nearly dozen other Karvy group companies that are also under its regulatory ambit. 
 
Karvy’s website lists the following group companies, most of them regulated by SEBI: Karvy Comtrade (commodities broking), Karvy Capital Ltd, a non-banking financial services company (NBFC) and a portfolio manager, Karvy Investment Advisory Services Ltd (formerly an insurance broker), Karvy Holdings Ltd (core investment company), Karvy Middle East LLC (wealth management for non-resident Indians), Karvy Realty (India) Ltd, Karvy Financial Services Ltd (NBFC), Karvy Insurance Repository Ltd, Karvy Forex & Currencies Private Ltd, Karvy Consultants Ltd, Karvy Data Management Services Ltd, Karvy Investor Services Ltd, Karvy Insights Ltd, Karvy Analytics Ltd, Karvy Solar Power Ltd, Karvy Global Services Ltd, Karvy Global Services Inc, USA (into business process outsourcing) and Karvy Inc, USA.
 
According to NSE, none of these Karvy group companies is under its supervision. 
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    City Union Bank, Tamilnad Mercantile Bank and Two Other Lenders Penalised by RBI
    The Reserve Bank of India (RBI) has imposed monetary penalty on City Union Bank Ltd, Tamilnad Mercantile Bank and two other lenders for contravention of certain directions issued by the banking regulator. 
     
    A penalty of Rs1 crore has been imposed on City Union Bank for contravention of and  on-compliance with certain provisions contained in the RBI (Lending to Micro, Small & Medium Enterprises (MSME) Sector) Directions, 2017 and the circulars on educational loan scheme and credit flow to agriculture – agricultural loans – waiver of margin and security requirements. 
     
    Separately, the RBI also imposed penalty of Rs1 crore on Tamilnad Mercantile Bank for non-compliance with certain provisions of directions issued by it on cyber security framework in banks.
     
    Further the central bank also imposed a penalty of Rs90 lakh on Ahmedabad-based Nutan Nagarik Sahakari Bank for non-compliance with RBI’s directions on interest rate on deposits, know your customer (KYC) and circular on frauds monitoring and reporting mechanism.
     
    RBI has also imposed monetary penalty of Rs10 lakh on Pune-based Daimler Financial Services India Pvt Ltd for non-compliance with certain provisions of the directions issued by RBI contained in 'Reserve Bank Commercial Paper Directions 2017' and 'Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016'. 
     
    Announcing the penalties in four separate releases, the RBI said that in case of all four cases, the penalties were imposed based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered by them with customers.
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    RBI Imposes Rs1 lakh Penalty on Beed-based Priyadarshini Mahila Nagari Sahakari Bank
    The Reserve Bank of India (RBl) has imposed a monetary penalty of Rs1 lakh on Beed, Maharashtra-based Priyadarshini Mahila Nagari Sahakari Bank Ltd, for non-adherence and violation of specific directions issued to the bank under supervisory action framework (SAF).
     
    "This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI," the banking regulator says in a statement.
     
    "This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers," the central bank added.
     
    The inspection report of the bank based on its financial position as on 31 March 2019, revealed, inter alia, non-adherence or violation of specific directions issued to the bank by the RBI under SAF. Based on the same, a show cause notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the directions.
     
    "After considering the bank's replies and oral submissions made during the personal hearing, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty," the RBI said.
     
     
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