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SEBI banned Karvy Stock Brokers from acquiring new contracts, clients and launching new schemes for six months in matter of irregularities in IPOs during 2003-2005
Market regulator Securities Exchange Board of India (SEBI) has barred Karvy Stock Broking Ltd (KSBL) from taking up new assignment, contracts and launching new schemes as well as not to take new clients or customers in respect of its business as a stock broker for six months for involving in initial public offering (IPO) irregularities during 2003-2005.
However, this order would not be given effect for four weeks from the date of its receipt by KSBL, as per a direction of the Securities Appellate Tribunal (SAT).
SEBI found that KSBL was involved in the large-scale irregularities in as many as 21 IPOs during 2003-2005. In its order, the market regulator said, “KSBL failed to maintain high standards of integrity and further indulged in manipulation and malpractices and thereby violated the code of conduct specified in its Broker Regulations.”
In its probe, SEBI noticed certain irregularities with respect to IPO of different companies. Few entities had opened various demat accounts in fictitious (benami) names and acquired the shares of IPOs in the category of retail investors using these accounts. Pursuant to the allotment, these shares were transferred to the demat account of these key operators and from thereon to ultimate beneficiaries, who were the financiers in the process, SEBI said.
In its order, the market regulator said, “It was observed that the ‘Karvy Group’ comprising of - Karvy Stock Broking Ltd, Karvy Consultants Ltd, Karvy Computershare Pvt Ltd, Karvy Securities Ltd and Karvy Investor Services Ltd, had allegedly assisted, aided and abetted the key operators in cornering the shares issued in the IPOs.”
SEBI further observed that KSBL has played an active role in aiding and abetting key operators in their devious scheme of cornering of shares. SEBI enquiry officer in order alleged that, Karvy had nexus with some key operators in facilitating their game plan of cornering of shares in the various IPOs which were meant for the retail category and the sale of those shares.
Earlier, SEBI passed various ex-parte interim orders between December 2005 and April 2006 issuing directions against various entities including those of Karvy group. In June 2008, three entities of Karvy group, including KSBL, appealed before the SAT for asking to pass three separate orders against them, while giving a four-week time for orders to come into effect. KSBL had also sought to settle the case through SEBI’s consent mechanism, but its plea was rejected by the market regulator.
RBI stays mute but must be held responsible
An interesting aside to the controversy at United Bank of India is that no political party or opposition leader has questioned RBI or the finance ministry on the rapid decline of this bank, for a second time. A hallmark of the United Progressive Alliance’s regime is that the crony club of politicians and industrialists covered the entire political spectrum, including the main opposition parties. Various mega-scams under the UPA, such as loot of natural resources and infrastructure contracts structured as public-private-partnerships, were funded by massive loans from public sector banks. Academic articles on RBI’s own website confirm that the sharpest increase in bad loans, since the turn of the century, happened in 2012 and 2013; in these two years, the incremental accretion to bad loans trebled compared to 2011 and earlier.
Power and infrastructure were the two sectors that saw the sharpest increase in bad loans since 2012; most of these are with public sector banks. With general elections a few weeks away, bankers are now turning bold and admit to pressure from the ruling coalition to keep lending to these sectors and to favoured industrialist-politicians.
Why has RBI remained a mute spectator to the sharp escalation in bad loans over the past five years? RBI, as India’s monetary authority and banking regulator, is never held accountable for its many lapses in supervision or its spending. A retired central banker says, from chief general manager upwards, most central bankers are far too busy logging frequent flying miles and garnering fat daily allowances. Many enter the Mint Street headquarters only to submit their vouchers before taking off again. That is one reason why policy decisions take forever and there is little time to discuss and analyse inspection reports about banks.